**Exhibit 4.1**

 

**SECURITIESPURCHASE AGREEMENT**

**THIS****SECURITIES PURCHASE AGREEMENT** (this “Agreement”),dated as of August 11, 2006, by and among **WORLDGATECOMMUNICATIONS, INC.,** a Delaware corporation (the “Company”),and the Buyers listed on Schedule I attached hereto (individually, a “Buyer”or collectively “Buyers”).

**WITNESSETH**

**WHEREAS**, theCompany and the Buyer(s) are executing and delivering this Agreement inreliance upon an exemption from securities registration pursuant to Section4(2) and/or Rule 506 of Regulation D (“Regulation D”) aspromulgated by the U.S. Securities and Exchange Commission (the “SEC”)under the Securities Act of 1933, as amended (the “Securities Act”);

**WHEREAS**, theparties desire that, upon the terms and subject to the conditions containedherein, the Company shall issue and sell to the Buyer(s), as provided herein,and the Buyer(s) shall purchase up to Eleven Million Dollars ($11,000,000) ofsecured convertible debentures (the “Convertible Debentures”), whichshall be convertible into shares of the Company’s common stock, par value $0.01(the “Common Stock”) (as converted, the “Conversion Shares”), ofwhich Six Million Dollars ($6,000,000) shall be funded on the date hereof (the “FirstClosing”), Three Million Dollars ($3,000,000) shall be funded on the datethat the stockholders of the Company approve the issuance of the ConversionShares and Warrant Shares (as defined herein) as contemplated by theTransaction Documents (as defined herein) (the “Second Closing”), andTwo Million Dollars ($2,000,000) shall be funded within three (3) business daysafter the date a registration statement (the “Registration Statement”),filed with the United States Securities and Exchange Commission (the “SEC”)pursuant to the Investor Registration Rights Agreement (as defined herein), isdeclared effective by the SEC (the “Third Closing”) (individuallyreferred to as a “Closing” collectively referred to as the “Closings”),for a total purchase price of up to Eleven Million Dollars ($11,000,000), (the “PurchasePrice”) in the respective amounts set forth opposite each Buyer(s) name onSchedule I (the “Subscription Amount”);

**WHEREAS**,contemporaneously with the execution and delivery of this Agreement, theparties hereto are executing and delivering an Investor Registration RightsAgreement (the “Investor Registration Rights Agreement”) pursuant towhich the Company has agreed to provide certain registration rights under theSecurities Act and the rules and regulations promulgated there under, andapplicable state securities laws;

**WHEREAS**,contemporaneously with the execution and delivery of this Agreement, theCompany, WorldGate Services, Inc., WorldGate Finance, Inc., WorldGateAcquisition Corp., Ojo Services LLC, Ojo Video Phones LLC and the Buyers areexecuting and delivering a Security Agreement; (the “Security Agreement”)pursuant to which the Company and its wholly owned subsidiaries agreed toprovide the Buyers a security interest in Pledged Property (as this term isdefined in the each Security Agreement) to secure the Company’s obligationsunder this Agreement and the Transaction Documents; and

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**WHEREAS**,contemporaneously with the execution and delivery of this Agreement, theparties hereto are executing and delivering Irrevocable Transfer Agent Instructions(the “Irrevocable Transfer Agent Instructions”).

**NOW, THEREFORE**, inconsideration of the mutual covenants and other agreements contained in thisAgreement the Company and the Buyer(s) hereby agree as follows:

### 1.     PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

#### (a)           Purchaseof Convertible Debentures.  Subjectto the satisfaction (or waiver) of the terms and conditions of this Agreement,each Buyer agrees, severally and not jointly, to purchase at each Closing andthe Company agrees to sell and issue to each Buyer, severally and not jointly,at each Closing, Convertible Debentures in amounts corresponding with theSubscription Amount set forth opposite each Buyer’s name on Schedule I hereto.

#### (b)           ClosingDate.  The First Closing of thepurchase and sale of the Convertible Debentures shall take place at 4:00 p.m.Eastern Daylight Time on the date hereof, subject to notification ofsatisfaction of the conditions to the First Closing set forth herein and inSections 6 and 7 below (or such later date as is mutually agreed to by theCompany and the Buyer(s)) (the “First Closing Date”), the Second Closingof the purchase and sale of the Convertible Debentures shall take place at10:00 a.m. Eastern Standard Time on the date that the stockholders of theCompany approve the issuance of the Conversion Shares and Warrant Shares ascontemplated by the Transaction Documents, subject to notification ofsatisfaction of the conditions to the Second Closing set forth herein and inSections 6 and 7 below (or such later date as is mutually agreed to by theCompany and the Buyer(s)) (the “Second Closing Date”), and the ThirdClosing of the purchase and sale of the Convertible Debentures shall take placeat 10:00 a.m. Eastern Standard Time on the third (3rd) business day immediatelyfollowing the date the Registration Statement is declared effective by the SEC,subject to notification of satisfaction of the conditions to the Third Closingset forth herein and in Sections 6 and 7 below (or such earlier date as ismutually agreed to by the Company and the Buyer(s)) (the “Third Closing Date”)(collectively referred to a the “Closing Dates”).  The Closing shall occur on the respectiveClosing Dates at the offices of Yorkville Advisors, LLC, 3700 Hudson Street,Suite 3700, Jersey City, New Jersey 07302 (or such other place as is mutuallyagreed to by the Company and the Buyer(s)).

#### (c)           Formof Payment.  Subject to thesatisfaction of the terms and conditions of this Agreement, on the ClosingDates, (i) the Buyers shall deliver to the Company such aggregate proceeds forthe Convertible Debentures to be issued and sold to such Buyer(s), minus thefees to be paid directly from the proceeds of the Closings as set forth herein,and (ii) the Company shall deliver to each Buyer, Convertible Debentureswhich such Buyer(s) is purchasing in amounts indicated opposite such Buyer’sname on Schedule I, duly executed on behalf of the Company.

### 2.     BUYER’SREPRESENTATIONS AND WARRANTIES.

Each Buyer represents and warrants, severally and notjointly, that:

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#### (a)           InvestmentPurpose.  Each Buyer is acquiring theConvertible Debentures and Warrants (as defined below) and, upon conversion ofConvertible Debentures and upon exercise of the Warrants, will acquire theConversion Shares or Warrant Shares then issuable, as the case may be, for itsown account for investment only and not with a view towards, or for resale inconnection with, the public sale or distribution thereof, except pursuant tosales registered or exempted under the Securities Act; provided, however, thatby making the representations herein, such Buyer reserves the right to disposeof the Conversion Shares and Warrant Shares at any time in accordance with orpursuant to an effective registration statement covering such Conversion Sharesand Warrant Shares or an available exemption under the Securities Act.

#### (b)           AccreditedInvestor Status.  Each Buyer is an “AccreditedInvestor” as that term is defined in Rule 501(a)(3) of Regulation D.

#### (c)           Relianceon Exemptions.  Each Buyerunderstands that the Convertible Debentures and Warrants are being offered andsold to it in reliance on specific exemptions from the registrationrequirements of United States federal and state securities laws and that theCompany is relying in part upon the truth and accuracy of, and such Buyer’scompliance with, the representations, warranties, agreements, acknowledgmentsand understandings of such Buyer set forth herein in order to determine theavailability of such exemptions and the eligibility of such Buyer to acquiresuch securities.

#### (d)           Information.  Each Buyer and its advisors (and his or, itscounsel), if any, have been furnished with all materials relating to thebusiness, finances and operations of the Company and information he deemedmaterial to making an informed investment decision regarding his purchase ofthe Convertible Debentures, the Conversion Shares, the Warrants and the WarrantShares, which have been requested by such Buyer.  Each Buyer and its advisors, if any, have beenafforded the opportunity to ask questions of the Company and itsmanagement.  Neither such inquiries norany other due diligence investigations conducted by such Buyer or its advisors,if any, or its representatives shall modify, amend or affect such Buyer’s rightto rely on the Company’s representations and warranties contained in Section 3below.  Each Buyer understands that itsinvestment in the Convertible Debentures, the Conversion Shares, the Warrantsand the Warrant Shares involves a high degree of risk.  Each Buyer is in a position regarding theCompany, which, based upon employment, family relationship or economicbargaining power, enabled and enables such Buyer to obtain information from theCompany in order to evaluate the merits and risks of this investment.  Each Buyer has sought such accounting, legaland tax advice, as it has considered necessary to make an informed investmentdecision with respect to its acquisition of the Convertible Debentures, theConversion Shares, the Warrants and the Warrant Shares.

#### (e)           NoGovernmental Review.  Each Buyerunderstands that no United States federal or state agency or any othergovernment or governmental agency has passed on or made any recommendation orendorsement of the Convertible Debentures, the Conversion Shares, the Warrantsand the Warrant Shares, or the fairness or suitability of the investment in theConvertible Debentures, the Conversion Shares, the Warrants and the WarrantShares, nor have such authorities passed upon or endorsed the merits of theoffering of the Convertible Debentures, the Conversion Shares, the Warrants andthe Warrant Shares.

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#### (f)            Transferor Resale.  Each Buyer understandsthat except as provided in the Investor Registration Rights Agreement: (i) theConvertible Debentures and the Warrants have not been and are not beingregistered under the Securities Act or any state securities laws, and may notbe offered for sale, sold, assigned or transferred unless (A) subsequentlyregistered thereunder, or (B) such Buyer shall have delivered to the Company anopinion of counsel, in a generally acceptable form, to the effect that suchsecurities to be sold, assigned or transferred may be sold, assigned ortransferred pursuant to an exemption from such registration requirements; (ii)any sale of such securities made in reliance on Rule 144 under the SecuritiesAct (or a successor rule thereto) (“Rule 144”) may be madeonly in accordance with the terms of Rule 144 and further, if Rule 144 is notapplicable, any resale of such securities under circumstances in which theseller (or the person through whom the sale is made) may be deemed to bean underwriter (as that term is defined in the Securities Act) may requirecompliance with some other exemption under the Securities Act or the rules andregulations of the SEC thereunder; and (iii) neither the Company nor any otherperson is under any obligation to register such securities under the SecuritiesAct or any state securities laws or to comply with the terms and conditions ofany exemption thereunder.  The Companyreserves the right to place stop transfer instructions against the shares andcertificates for the Conversion Shares and Warrant Shares.

#### (g)           Legends.  Each Buyer understands that the certificatesor other instruments representing the Convertible Debentures, the Conversion Shares,the Warrants or the Warrant Shares shall bear a restrictive legend insubstantially the following form (and a stop ­transfer order may be placedagainst transfer of such stock certificates):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIESLAWS.  THE SECURITIES HAVE BEEN ACQUIREDSOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD RESALE AND MAY NOT BEOFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVEREGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, ASAMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN AGENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT ORAPPLICABLE STATE SECURITIES LAWS.

The legend set forth above shall be removed and theCompany within three (3) business days shall issue a certificate without suchlegend to the holder of the Conversion Shares or Warrant Shares upon which it isstamped, if, unless otherwise required by state securities laws, (i) inconnection with a sale transaction, provided the Conversion Shares or WarrantShares, as the case may be, are registered under the Securities Act or (ii) inconnection with a sale transaction, after such holder provides the Company withan opinion of counsel, which opinion shall be in form, substance and scopecustomary for opinions of counsel in comparable transactions, to the 

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effect that a public sale, assignment or transfer of theConversion Shares or Warrant Shares, as the case may be, may be made withoutregistration under the Securities Act.

#### (h)           Authorization,Enforcement.  This Agreement has beenduly and validly authorized, executed and delivered on behalf of such Buyer andis a valid and binding agreement of such Buyer enforceable in accordance withits terms, except as such enforceability may be limited by general principlesof equity or applicable bankruptcy, insolvency, reorganization, moratorium,liquidation and other similar laws relating to, or affecting generally, theenforcement of applicable creditors’ rights and remedies.

#### (i)            Receiptof Documents.  Each Buyer and his orits counsel has received and read in their entirety:  (i) this Agreement and each representation,warranty and covenant set forth herein and the Transaction Documents; (ii) alldue diligence and other information necessary to verify the accuracy andcompleteness of such representations, warranties and covenants; (iii) theCompany’s Form 10-K for the fiscal year ended December 31, 2005; (iv) theCompany’s Form 10-Q for the fiscal quarter ended March 31, 2006 and (v) answersto all questions each Buyer submitted to the Company regarding an investment inthe Company; and each Buyer has relied on the information contained therein andhas not been furnished any other documents, literature, memorandum orprospectus.

#### (j)            DueFormation of Corporate and Other Buyers. If the Buyer(s) is a corporation, trust, partnership or other entitythat is not an individual person, it has been formed and validly exists and hasnot been organized for the specific purpose of purchasing the ConvertibleDebentures and is not prohibited from doing so.

#### (k)           NoLegal Advice From the Company.  EachBuyer acknowledges, that it had the opportunity to review this Agreement andthe transactions contemplated by this Agreement with his or its own legalcounsel and investment and tax advisors. Each Buyer is relying solely on such counsel and advisors and not on anystatements or representations of the Company or any of its representatives oragents for legal, tax or investment advice with respect to this investment, thetransactions contemplated by this Agreement or the securities laws of anyjurisdiction.

### 3.     REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants as of the datehereof to each of the Buyers that, except as set forth in the SEC Documents (asdefined herein) or in the Disclosure Schedule attached hereto (the “DisclosureSchedule”):

#### (a)           Organizationand Qualification.  The Company andits subsidiaries are duly organized and validly existing in good standing underthe laws of the jurisdiction in which they are organized, and have therequisite power to own their properties and to carry on their business as nowbeing conducted.  Each of the Company andits subsidiaries is duly qualified as a foreign corporation or limitedliability company to do business and is in good 

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#### standing in every jurisdiction in which the nature of the businessconducted by it makes such qualification necessary, except to the extent thatthe failure to be so qualified or be in good standing would not have a materialadverse effect on the Company and its subsidiaries taken as a whole.

#### (b)           Authorization,Enforcement, Compliance with Other Instruments.  (i) The Company has the requisitecorporate power and authority to enter into and perform this Agreement, theSecurity Agreement, the Investor Registration Rights Agreement, the IrrevocableTransfer Agent Agreement, and any related agreements (collectively the “TransactionDocuments”) and to issue the Convertible Debentures and the ConversionShares in accordance with the terms hereof and thereof, (ii) the execution anddelivery of the Transaction Documents by the Company and the consummation by itof the transactions contemplated hereby and thereby, including, withoutlimitation, the issuance of the Convertible Debentures, the ConversionShares  and the reservation for issuanceand the issuance of the Conversion Shares issuable upon conversion or exercisethereof, have been duly authorized by the Company’s Board of Directors and nofurther consent or authorization is required by the Company, its Board ofDirectors or its stockholders, (iii) the Transaction Documents have been dulyexecuted and delivered by the Company, (iv) the Transaction Documentsconstitute the valid and binding obligations of the Company enforceable againstthe Company in accordance with their terms, except as such enforceability maybe limited by general principles of equity or applicable bankruptcy,insolvency, reorganization, moratorium, liquidation or similar laws relatingto, or affecting generally, the enforcement of creditors’ rights andremedies.  The authorized officer of theCompany executing the Transaction Documents knows of no reason why the Companycannot file the registration statement as required under the InvestorRegistration Rights Agreement or perform any of the Company’s other obligationsunder such documents.

#### (c)           Capitalization.  The authorized capital stock of the Companyconsists of 80,000,000 shares of Common Stock and 13,500,000 shares ofPreferred Stock, par value $0.01 (“Preferred Stock”) of which 39,898,110shares of Common Stock and 166 shares of Preferred Stock are issued andoutstanding.  All of such outstandingshares have been validly issued and are fully paid and nonassessable.  No shares of Common Stock are subject topreemptive rights or any other similar rights or any liens or encumbrancessuffered or permitted by the Company.  Asof the date of this Agreement, (i) there are no outstanding options, warrants,scrip, rights to subscribe to, calls or commitments of any character whatsoeverrelating to, or securities or rights convertible into, any shares of capitalstock of the Company or any of its subsidiaries, or contracts, commitments,understandings or arrangements by which the Company or any of its subsidiariesis or may become bound to issue additional shares of capital stock of theCompany or any of its subsidiaries or options, warrants, scrip, rights tosubscribe to, calls or commitments of any character whatsoever relating to, orsecurities or rights convertible into, any shares of capital stock of theCompany or any of its subsidiaries, (ii) there are no outstanding debt securitiesand (iii) there are no agreements or arrangements under which the Company orany of its subsidiaries is obligated to register the sale of any of theirsecurities under the Securities Act (except pursuant to the Registration RightsAgreement) and (iv) there are no outstanding registration statements and thereare no outstanding comment letters from the SEC or any other regulatoryagency.  There are no securities orinstruments containing anti-dilution or similar provisions that will betriggered by the issuance of the Convertible Debentures as described in thisAgreement.  The Company has furnished tothe Buyer true and correct copies of the Company’s Certificate ofIncorporation, as amended and as in effect on the date hereof (the “Certificateof Incorporation”), and the Company’s By-laws, as in effect on the datehereof (the 

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#### “By-laws”), and the terms of all securities convertible into orexercisable for Common Stock and the material rights of the holders thereof inrespect thereto other than stock options issued to employees and consultants.

#### (d)           Issuanceof Securities.  The ConvertibleDebentures are duly authorized and, upon issuance in accordance with the termshereof, shall be duly issued, fully paid and nonassessable, are free from alltaxes, liens and charges with respect to the issue thereof.  The Conversion Shares issuable uponconversion of the Convertible Debentures have been duly authorized and reservedfor issuance.  Upon conversion orexercise in accordance with the Convertible Debentures the Conversion Shareswill be duly issued, fully paid and nonassessable.

#### (e)           NoConflicts.  The execution, deliveryand performance of the Transaction Documents by the Company and theconsummation by the Company of the transactions contemplated hereby will not (i)result in a violation of the Certificate of Incorporation, any certificate ofdesignations of any outstanding series of preferred stock of the Company or theBy-laws or (ii) conflict with or constitute a default (or an event which withnotice or lapse of time or both would become a default) under, or give toothers any rights of termination, amendment, acceleration or cancellation of,any agreement, indenture or instrument to which the Company or any of itssubsidiaries is a party, or result in a violation of any law, rule, regulation,order, judgment or decree (including federal and state securities laws andregulations and the rules and regulations of the Nasdaq Capital Market on whichthe Common Stock is quoted) applicable to the Company or any of its subsidiariesor by which any property or asset of the Company or any of its subsidiaries isbound or affected.  Neither the Companynor its subsidiaries is in violation of any term of or in default under itsCertificate of Incorporation or By-laws or their organizational charter orby-laws, respectively, or any material contract, agreement, mortgage,indebtedness, indenture, instrument, judgment, decree or order or any statute,rule or regulation applicable to the Company or its subsidiaries.  The business of the Company and itssubsidiaries is not being conducted, and shall not be conducted in violation ofany material law, ordinance, or regulation of any governmental entity.  Except as specifically contemplated by thisAgreement and as required under the Securities Act and any applicable statesecurities laws, the Company is not required to obtain any consent,authorization or order of, or make any filing or registration with, any courtor governmental agency in order for it to execute, deliver or perform any ofits obligations under or contemplated by this Agreement or the RegistrationRights Agreement in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filingsand registrations which the Company is required to obtain pursuant to thepreceding sentence have been obtained or effected on or prior to the datehereof.  The Company and its subsidiariesare unaware of any facts or circumstance, which might give rise to any of theforegoing.

#### (f)            SECDocuments: Financial Statements. Since January 1, 2005, the Company has filed all reports, schedules,forms, statements and other documents required to be filed by it with the SECunder the Securities Exchange Act of 1934, as amended (the “Exchange Act”)(all of the foregoing filed prior to the date hereof or amended after the datehereof and all exhibits included therein and financial statements and schedulesthereto and documents incorporated by reference therein, being hereinafterreferred to as the “SEC Documents”). The Company has delivered to the Buyers or their representatives, ormade available through the 

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#### SEC’s website at http://www.sec.gov., true and complete copies of theSEC Documents.  As of their respectivedates, the financial statements of the Company disclosed in the SEC Documents(the “Financial Statements”) complied as to form in all materialrespects with applicable accounting requirements and the published rules andregulations of the SEC with respect thereto. Such financial statements have been prepared in accordance withgenerally accepted accounting principles, consistently applied, during theperiods involved (except (i) as may be otherwise indicated in such FinancialStatements or the notes thereto, or (ii) in the case of unaudited interimstatements, to the extent they may exclude footnotes or may be condensed orsummary statements) and, fairly present in all material respects the financialposition of the Company as of the dates thereof and the results of itsoperations and cash flows for the periods then ended (subject, in the case ofunaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalfof the Company to the Buyer which is not included in the SEC Documents,including, without limitation, information referred to in this Agreement,contains any untrue statement of a material fact or omits to state any materialfact necessary in order to make the statements therein, in the light of thecircumstances under which they were made, not misleading.

#### (g)           10(b)-5.  The SEC Documents do not include any untruestatements of material fact, nor do they omit to state any material factrequired to be stated therein necessary to make the statements made, in lightof the circumstances under which they were made, not misleading.

#### (h)           Absenceof Litigation.  There is no action,suit, proceeding, inquiry or investigation before or by any court, publicboard, government agency, self-regulatory organization or body pending againstor affecting the Company, the Common Stock or any of the Company’ssubsidiaries, wherein an unfavorable decision, ruling or finding would (i) havea material adverse effect on the transactions contemplated hereby (ii)adversely affect the validity or enforceability of, or the authority or abilityof the Company to perform its obligations under, this Agreement or any of thedocuments contemplated herein, or (iii) have a material adverse effect on thebusiness, operations, properties, financial condition or results of  operations of the Company and its subsidiariestaken as a whole.

#### (i)            AcknowledgmentRegarding Buyer’s Purchase of the Convertible Debentures.  The Company acknowledges and agrees that theBuyer(s) is acting solely in the capacity of an arm’s length purchaser withrespect to this Agreement and the transactions contemplated hereby.  The Company further acknowledges that theBuyer(s) is not acting as a financial advisor or fiduciary of the Company (orin any similar capacity) with respect to this Agreement and the transactionscontemplated hereby and any advice given by the Buyer(s) or any of theirrespective representatives or agents in connection with this Agreement and thetransactions contemplated hereby is merely incidental to such Buyer’s purchaseof the Convertible Debentures or the Conversion Shares.  The Company further represents to the Buyerthat the Company’s decision to enter into this Agreement has been based solelyon the independent evaluation by the Company and its representatives.

#### (j)            NoGeneral Solicitation.  Neither theCompany, nor any of its affiliates, nor any person acting on its or theirbehalf, has engaged in any form of general 

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#### solicitation or general advertising (within the meaning of Regulation Dunder the Securities Act) in connection with the offer or sale of the ConvertibleDebentures or the Conversion Shares.

#### (k)           NoIntegrated Offering.  Neither theCompany, nor any of its affiliates, nor any person acting on its or theirbehalf has, directly or indirectly, made any offers or sales of any security orsolicited any offers to buy any security, under circumstances that wouldrequire registration of the Convertible Debentures or the Conversion Sharesunder the Securities Act or cause this offering of the Convertible Debenturesor the Conversion Shares to be integrated with prior offerings by the Companyfor purposes of the Securities Act.

#### (l)            EmployeeRelations.  Neither the Company norany of its subsidiaries is involved in any labor dispute nor, to the knowledgeof the Company or any of its subsidiaries, is any such dispute threatened.  None of the Company’s or its subsidiaries’employees is a member of a union and the Company and its subsidiaries believethat their relations with their employees are good.

#### (m)          IntellectualProperty Rights.  The Company and itssubsidiaries own or possess adequate rights or licenses to use all trademarks,trade names, service marks, service mark registrations, service names, patents,patent rights, copyrights, inventions, licenses, approvals, governmentalauthorizations, trade secrets and rights necessary to conduct their respectivebusinesses as now conducted.  The Companyand its subsidiaries do not have any knowledge of any infringement by theCompany or its subsidiaries of trademark, trade name rights, patents, patentrights, copyrights, inventions, licenses, service names, service marks, servicemark registrations, trade secret or other similar rights of others, and, to theknowledge of the Company there is no claim, action or proceeding being made orbrought against, or to the Company’s knowledge, being threatened against, theCompany or its subsidiaries regarding trademark, trade name, patents, patentrights, invention, copyright, license, service names, service marks, servicemark registrations, trade secret or other infringement; and the Company and itssubsidiaries are unaware of any facts or circumstances which might give rise toany of the foregoing.

#### (n)           EnvironmentalLaws.  The Company and itssubsidiaries are (i) in compliance with any and all applicable foreign,federal, state and local laws and regulations relating to the protection ofhuman health and safety, the environment or hazardous or toxic substances orwastes, pollutants or contaminants (“Environmental Laws”), (ii) havereceived all permits, licenses or other approvals required of them underapplicable Environmental Laws to conduct their respective businesses and (iii)are in compliance with all terms and conditions of any such permit, license orapproval.

#### (o)           Title.  Any real property and facilities held underlease by the Company and its subsidiaries are held by them under valid,subsisting and enforceable leases with such exceptions as are not material anddo not interfere with the use made and proposed to be made of such property andbuildings by the Company and its subsidiaries.

#### (p)           Insurance.  The Company and each of its subsidiaries areinsured by insurers of recognized financial responsibility against such lossesand risks and in such amounts as management of the Company believes to beprudent and customary in the businesses 

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#### in which the Company and its subsidiaries are engaged.  Neither the Company nor any such subsidiaryhas been refused any insurance coverage sought or applied for and neither theCompany nor any such subsidiary has any reason to believe that it will not beable to renew its existing insurance coverage as and when such coverage expiresor to obtain similar coverage from similar insurers as may be necessary tocontinue its business at a cost that would not materially and adversely affectthe condition, financial or otherwise, or the earnings, business or operationsof the Company and its subsidiaries, taken as a whole.

#### (q)           RegulatoryPermits.  The Company and itssubsidiaries possess all material certificates, authorizations and permitsissued by the appropriate federal, state or foreign regulatory authoritiesnecessary to conduct their respective businesses, and neither the Company norany such subsidiary has received any notice of proceedings relating to therevocation or modification of any such certificate, authorization or permit.

#### (r)            InternalAccounting Controls.  The Company andeach of its subsidiaries maintain a system of internal accounting controlssufficient to provide reasonable assurance that (i) transactions are executedin accordance with management’s general or specific authorizations, (ii)transactions are recorded as necessary to permit preparation of financialstatements in conformity with generally accepted accounting principles and tomaintain asset accountability, and (iii) the recorded amounts for assets iscompared with the existing assets at reasonable intervals and appropriateaction is taken with respect to any differences.

#### (s)           NoMaterial Adverse Breaches, etc. Neither the Company nor any of its subsidiaries is subject to any charter,corporate or other legal restriction, or any judgment, decree, order, rule orregulation which in the judgment of the Company’s officers has or is expectedin the future to have a material adverse effect on the business, properties,operations, financial condition, results of operations or prospects of theCompany or its subsidiaries.  Neither theCompany nor any of its subsidiaries is in breach of any contract or agreementwhich breach, in the judgment of the Company’s officers, has or is expected tohave a material adverse effect on the business, properties, operations,financial condition, results of operations or prospects of the Company or itssubsidiaries.

#### (t)            TaxStatus.  The Company and each of itssubsidiaries has made and filed all federal and state income and all other taxreturns, reports and declarations required by any jurisdiction to which it issubject and (unless and only to the extent that the Company and each of itssubsidiaries has set aside on its books provisions reasonably adequate for thepayment of all unpaid and unreported taxes) has paid all taxes and othergovernmental assessments and charges that are material in amount, shown ordetermined to be due on such returns, reports and declarations, except thosebeing contested in good faith and has set aside on its books provisionreasonably adequate for the payment of all taxes for periods subsequent to theperiods to which such returns, reports or declarations apply.  There are no unpaid taxes in any materialamount claimed to be due by the taxing authority of any jurisdiction, and theofficers of the Company know of no basis for any such claim.

#### (u)           CertainTransactions.  Except for arm’slength transactions pursuant to which the Company makes payments in theordinary course of business upon terms no less favorable than the Company couldobtain from third parties and other than the grant of 

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#### stock options disclosed in the SEC Documents, none of the officers,directors, or employees of the Company is presently a party to any transactionwith the Company (other than for services as employees, officers anddirectors), including any contract, agreement or other arrangement providingfor the furnishing of services to or by, providing for rental of real orpersonal property to or from, or otherwise requiring payments to or from anyofficer, director or such employee or, to the knowledge of the Company, anycorporation, partnership, trust or other entity in which any officer, director,or any such employee has a substantial interest or is an officer, director,trustee or partner.

#### (v)           Feesand Rights of First Refusal.  TheCompany is not obligated to offer the securities offered hereunder on a rightof first refusal basis or otherwise to any third parties including, but notlimited to, current or former stockholders of the Company, underwriters,brokers, agents or other third parties.

### 4.     COVENANTS.

#### (a)           BestEfforts.  Each party shall use itsbest efforts to timely satisfy each of the conditions to be satisfied by it asprovided in Sections 6 and 7 of this Agreement.

#### (b)           FormD.  The Company agrees to file a FormD with respect to the Conversion Shares as required under Regulation D and toprovide a copy thereof to each Buyer promptly after such filing.  The Company shall, promptly following theClosing Date, take such action as the Company shall reasonably determine isnecessary to qualify the Conversion Shares, or obtain an exemption for theConversion Shares for sale to the Buyers at the Closing pursuant to thisAgreement under applicable securities or “Blue Sky” laws of the states of theUnited States, and shall provide evidence of any such action so taken to theBuyers promptly following the Closing Date.

#### (c)           ReportingStatus.  Until the earlier of (i) thedate as of which the Buyer(s) may sell all of the Conversion Shares withoutrestriction pursuant to Rule 144(k) promulgated under the Securities Act (orsuccessor thereto), or (ii) the date on which (A) the Buyer(s) shall have soldall the Conversion Shares and (B) none of the Convertible Debentures areoutstanding (the “Registration Period”), the Company shall file in atimely manner all reports required to be filed with the SEC pursuant to theExchange Act and the regulations of the SEC  thereunder, and the Company shall not terminate its status as an issuerrequired to file reports under the Exchange Act even if the Exchange Act or therules and regulations thereunder would otherwise permit such termination.

#### (d)           Useof Proceeds.  The Company will usethe proceeds from the sale of the Convertible Debentures for general corporateand working capital purposes.

#### (e)           Reservationof Shares.  On the date hereof, theCompany shall reserve for issuance to the Buyers 7,798,333 shares for issuanceupon conversions of the Convertible Dentures and for issuance upon exercise ofthe Warrants (collectively, the “Initial Share Reserve”).  The Company represents that it has sufficientauthorized and unissued shares of Common Stock available to create the InitialShare Reserve after considering all other commitments that may require theissuance of Common Stock.  If the Companyobtains 

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#### Stockholder Approval pursuant to Section 4(o) hereof, the Company shallpromptly increase the Initial Share Reserve by 22,201,667****shares to a total reserve of 30,000,000****shares for issuance upon conversions ofthe Convertible Debentures and upon exercise of the Warrants (collectively, the“Share Reserve”).  The Companyshall take all action reasonably necessary to at all times have authorized, andreserved for the purpose of issuance, such number of shares of Common Stock asshall be necessary to effect the full conversion of the Convertible Debenturesand the full exercise of the Warrants. If at any time the Share Reserve is insufficient to effect the fullconversion of the Convertible Debentures or the full exercise of the Warrants,the Company shall increase the Share Reserve accordingly.  If the Company does not have sufficientauthorized and unissued shares of Common Stock available to increase the ShareReserve, the Company shall call and hold a meeting of the stockholders withinseventy five (75) days of such occurrence (or within one hundred twenty (120)days of such occurrence if the SEC initiates a review of any proxy statementfiled by the Company in connection with such meeting), for the purpose ofincreasing the number of shares authorized. The Company’s management shall recommend to the stockholders to vote infavor of increasing the number of shares of Common Stock authorized.  Management shall also vote all of its sharesin favor of increasing the number of authorized shares of Common Stock.

#### (f)            Listingsor Quotation.  The Company’s CommonStock shall be listed or quoted for trading on any of (a) the American StockExchange, (b) New York Stock Exchange, (c) the Nasdaq National Market, (d) theNasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board (“OTC”)(each, a “Primary Market”) and the Company shall promptly secure thelisting or quotation of the Conversion Shares and Warrant Shares for trading onthe same Primary Market upon which the shares of Common Stock are then listedor quoted.

#### (g)           Feesand Expenses.

##### (i)            Eachof the Company and the Buyer(s) shall pay all costs and expenses incurred bysuch party in connection with the negotiation, investigation, preparation,execution and delivery of the Transaction Documents.  The Company shall pay Yorkville Advisors LLCa fee equal to six percent (6%) of the Purchase Price, payable pro rata at eachClosing.

##### (ii)           TheCompany has paid a structuring fee to Yorkville Advisors LLC of Twenty ThousandDollars ($20,000).

##### (iii)          TheCompany has paid Yorkville Advisors, LLC a non-refundable due diligence fee ofFive Thousand Dollars ($5,000).

##### (iv)          TheCompany shall issue to each Buyer warrants to purchase shares of Common Stock,each in the form of the warrant attached hereto as Exhibit A, in therespective amounts and exercise prices as set forth next to each Buyer inrespect of each Closing as outlined on Schedule II attached hereto(collectively, the “Warrants”).

##### (v)           Theshares of Common Stock issuable under the Warrants shall collectively bereferred to as the “Warrant Shares”. The Warrant Shares shall have “piggy-back” and demand registrationrights.

 

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##### (vi)          Onthe date hereof, the Company shall issue to the Buyers shares of Common Stock(the “Commitment Shares”) in the amount set forth in column 8 next toeach Buyer’s name on Schedule I attached hereto.

#### (h)           CorporateExistence.  So long as any of the ConvertibleDebentures remain outstanding, the Company shall not directly or indirectlyconsummate any merger, reorganization, restructuring, reverse stock splitconsolidation, sale of all or substantially all of the Company’s assets or anysimilar transaction or related transactions (each such transaction, an “OrganizationalChange”) unless, in any such case, the Company makes appropriate provisionwith respect to such holders’ rights and interests to insure that theprovisions of this Section 4(h) will thereafter be applicable to theConvertible Debentures.

#### (i)            TransactionsWith Affiliates.  So long as anyConvertible Debentures are outstanding, the Company shall not, and shall causeeach of its subsidiaries not to, enter into, amend, modify or supplement, orpermit any subsidiary to enter into, amend, modify or supplement any agreement,transaction, commitment, or arrangement with any of its or any subsidiary’sofficers, directors, person who were officers or directors at any time duringthe previous two (2) years, stockholders who beneficially own five percent (5%)or more of the Common Stock, or Affiliates (as defined below) or with anyindividual related by blood, marriage, or adoption to any such individual orwith any entity in which any such entity or individual owns a five percent (5%)or more beneficial interest (each a “Related Party”), except for (a)customary employment arrangements and benefit programs on reasonable terms, (b)any investment in an Affiliate of the Company, (c) any agreement, transaction, commitment, or arrangement on anarms-length basis on terms no less favorable than terms which would have beenobtainable from a person other than such Related Party, or (d) any agreement,transaction, commitment, or arrangement which is approved by a majority of thedisinterested directors of the Company; for purposes hereof, any director whois also an officer of the Company or any subsidiary of the Company shall not bea disinterested director with respect to any such agreement, transaction, commitment,or arrangement.  “Affiliate” forpurposes hereof means, with respect to any person or entity, another person orentity that, directly or indirectly, (i) has a ten percent (10%) or more equityinterest in that person or entity, (ii) has ten percent (10%) or more commonownership with that person or entity, (iii) controls that person or entity, or(iv) shares common control with that person or entity.  “Control” or “controls” forpurposes hereof means that a person or entity has the power, direct or indirect,to conduct or govern the policies of another person or entity.

#### (j)            TransferAgent.  The Company covenants andagrees that, in the event that the Company’s agency relationship with thetransfer agent should be terminated for any reason prior to a date which is two(2) years after the Closing Date, the Company shall immediately appoint a newtransfer agent and shall require that the new transfer agent execute and agreeto be bound by the terms of the Irrevocable Transfer Agent Instructions (asdefined herein).

#### (k)           Restrictionon Issuance of the Capital Stock. So long as any Convertible Debentures areoutstanding, the Company shall not, without the prior written consent of theBuyer(s), (i) issue or sell shares of Common Stock without consideration or fora consideration per share less than 80% of the volume weighted average price ofthe Common

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#### Stock, as quoted by Bloomberg, LP, on thetrading day immediately prior to the issuance (the “Volume Weighted AveragePrice”), or (ii) issue any preferred stock, warrant, option, right,contract, call, or other security or instrument (an “Option”) grantingthe holder thereof the right to acquire shares of Common Stock withoutconsideration or for a consideration less than 80% of the Volume WeightedAverage Price.  Notwithstanding theimmediately preceding sentence, the Company may, without consent, issue or sellfor any consideration it deems appropriate (A) in any three (3) month period,up to 250,000 shares of Common Stock (including shares of Common Stock issuableupon conversion, exercise, or exchange of Options granted in such three (3)month period), (B) capital stock in connection with strategic transactionscompleted with third party entities in connection with the operating business,and which are not primarily considered capital raising events, and (C) capitalstock to consultants, employees, officers, or directors of the Company pursuantto any stock or option or other incentive plan duly adopted by a majority ofthe non-employee members of the Board of Directors of the Company or a majorityof the members of a committee of non-employee directors established for suchpurpose.

#### (l)            Neitherthe Buyer(s) nor any of its affiliates have, or has had within the 60 dayspreceding this Agreement, an open short position in the Common Stock of theCompany, and the Buyer(s) agrees that it shall not, and that it will cause itsaffiliates not to, engage in any short sales of (including the lending ofshares to facilitate the short selling by others) or hedging transactions withrespect to the Common Stock as long as any Convertible Debentures shall remainoutstanding.

#### (m)          Rightsof Participation.  For a period of 15 months from the date hereof,if the Company intends to raise additional capital by the issuance or sale ofcapital stock of the Company, including without limitation shares of any classof common stock, any class of preferred stock, options, warrants or any othersecurities convertible or exercisable into shares of common stock (whether theoffering is conducted by the Company, underwriter, placement agent or any thirdparty) the Company shall be obligated to offer to the Buyers the lesser of (a)one half of the total contemplated issuance or sale of capital stock or (b) theoutstanding amount of the Convertible Debentures at the time of such issuanceor sale of capital stock, by providing in writing the principal amount ofcapital it intends to raise and outline of the material terms of such capitalraise, prior to the offering such issuance or sale of capital stock  toany third parties including, but not limited to, current or former officers ordirectors, current or former stockholders and/or investors of the obligor,underwriters, brokers, agents or other third parties.  The Buyers shallhave ten (10) business days from receipt of such notice of the sale or issuanceof capital stock to accept or reject all or a portion of such capital raisingoffer.  This right of participation setforth in this Section shall not apply to issuances or sales of capital stock(i) for strategic transactions completed with third party entities inconnection with the operating business, and which are not primarily consideredcapital raising events (ii) to consultants, employees, officers or directors ofthe Company pursuant to any stock or option or other incentive plan dulyadopted by a majority of the non-employee members of the Board of Directors ofthe Company or a majority of the members of a committee of non-employeedirectors established for such purpose, or (iii) upon the exercise or exchangeof or conversion of any securities issued hereunder and/or other securitiesexercisable or exchangeable for or convertible into shares of Common Stockissued and outstanding on the date of this Agreement.

#### (n)           Rule144 Acknowledgement and Agreement.

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##### (i)            Onthe date hereof, the Company shall obtain from each officer and directorbeneficially owning (without taking into account the effect of any ownershipcaps) more than 0.8% of the Company’s outstanding Common Stock as the datehereof a Rule 144 Acknowledgement and Agreement in the form attached hereto as ExhibitB.

##### (ii)           Atany time while the Debentures remain outstanding, if any officer or directorshall become the beneficial owner (without taking into account the effect ofany ownership caps) of more than 0.8% of the Company’s outstanding CommonStock, the Company shall obtain a Rule 144 Acknowledgement and Agreement in theform attached hereto as Exhibit B.

#### (o)           StockholderApproval.  The Company shall provideeach stockholder entitled to vote at a special meeting or annual meeting ofstockholders of the Company (the “Stockholder Meeting”), which shall bepromptly called and held not later than one hundred twenty (120) calendar daysfrom the date hereof, a proxy statement soliciting each such stockholder’saffirmative vote at the Stockholder Meeting for approval of resolutions (a)providing for the Company’s issuance of all of the Conversion Shares andWarrant Shares and (b) increasing the Company’s authorized Common Stock to atleast 120,000,000 (the “Stockholder Approval”) in accordance with lawand the rules and regulations of the Principal Market and the Company’s stateof incorporation, and the Company shall use its reasonable best efforts tosolicit its stockholder’s approval of such resolutions and to cause the Boardof Directors of the Company to recommend to the stockholders that they approvesuch resolutions.  Notwithstanding anyother provision of this Agreement, the aggregate number of shares that may beissued pursuant to this Agreement and the Convertible Debenture and Warrantsissued in connection herewith shall not be greater than 19.99% of theoutstanding shares of Common Stock as of the date of this Agreement unless anduntil Stockholder Approval (without the vote of any shares acquired in thistransaction and related transactions) is obtained.

#### (p)           Listingof Additional Shares.  Within five(5) business days after the First Closing, the Company shall file anapplication to list all of the additional shares issuable pursuant to thisAgreement with the Primary Market upon which the shares of Common Stock arethen listed or quoted.

### 5.     TRANSFERAGENT INSTRUCTIONS.

#### (a)           The Company shallissue the Irrevocable Transfer Agent Instructions to its transfer agentirrevocably appointing, subject to Section 5(b) of this Agreement, DavidGonzalez, Esq. as the Company’s agent for purposes of having certificates to beissued, registered in the name of the Buyer(s) or its respective nominee(s),for the Conversion Shares representing such amounts of Convertible Debenturesas specified from time to time by the Buyer(s) to the Company upon conversionof the Convertible Debentures, for interest owed pursuant to the ConvertibleDebenture, and for any and all Liquidated Damages (as this term is defined in theInvestor Registration Rights Agreement). The Company shall not change its transfer agent without the expresswritten consent of the Buyer(s), which consent shall not be unreasonablywithheld, delayed or conditioned.  Priorto registration of the Conversion Shares under the Securities Act, all suchcertificates shall bear the restrictive legend specified in Section 2(g) ofthis Agreement.  The Company warrantsthat no instruction other than the Irrevocable

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#### Transfer AgentInstructions referred to in this Section 5, and stop transfer instructions togive effect to Section 2(g) hereof (in the case of the Conversion Shares priorto registration of such shares under the Securities Act) will be given by theCompany to its transfer agent and that the Conversion Shares shall otherwise befreely transferable on the books and records of the Company as and to theextent provided in this Agreement and the Investor Registration RightsAgreement.  Nothing in this Section 5shall affect in any way the Buyer’s obligations and agreement to comply withall applicable securities laws upon resale of Conversion Shares.  If the Buyer(s) provides the Company with anopinion of counsel, in form, scope and substance customary for opinions ofcounsel in comparable transactions to the effect that registration of a resaleby the Buyer(s) of any of the Conversion Shares is not required under theSecurities Act, the Company shall within two (2) business days instruct itstransfer agent to issue one or more certificates in such name and in suchdenominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligationshereunder will cause irreparable harm to the Buyer by vitiating the intent andpurpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for abreach of its obligations under this Section 5 will be inadequate and agrees,in the event of a breach or threatened breach by the Company of the provisionsof this Section 5, that the Buyer(s) shall be entitled, in addition to allother available remedies, to an injunction restraining any breach and requiringimmediate issuance and transfer, without the necessity of showing economic lossand without any bond or other security being required.

#### (b)           Upon the occurrenceand continuation of an Event of Default (as defined in the ConvertibleDebentures), the Buyer(s) shall provide written notice (the “Notice ofAppointment”) to the Company that an Event of Default has occurred and iscontinuing and upon delivery of the Notice of Appointment David Gonzalez, Esq.shall thereafter be deemed to be irrevocably appointed the Company’s agent forthe purposes enumerated in the Irrevocable Transfer Agent Instructions andauthorized to act in accordance therewith.

### 6.     CONDITIONSTO THE COMPANY’S OBLIGATION TO SELL.

The obligation of the Company hereunder to issue andsell the Convertible Debentures to the Buyer(s) at each Closing is subject tothe satisfaction, at or before the applicable Closing Date, of each of thefollowing conditions, provided that these conditions are for the Company’s solebenefit and may be waived by the Company at any time in its sole discretion:

#### (a)           Each Buyer shall have executed the Transaction Documentsand delivered them to the Company.

#### (b)           The Buyer(s) shall have delivered to the Company thePurchase Price for Convertible Debentures in respective amounts as set forthnext to each Buyer in respect of such Closing as outlined on Schedule Iattached hereto, minus any fees to be paid directly from the proceeds at suchClosing as set forth herein, by wire transfer of immediately available U.S.funds pursuant to the wire instructions provided by the Company.

#### (c)           The representations and warranties of the Buyer(s) shallbe true and correct in all material respects as of the date when made and as ofthe applicable Closing Date as though made at that time (except forrepresentations and warranties that speak as of a

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#### specific date), and the Buyer(s) shall haveperformed, satisfied and complied in all material respects with the covenants,agreements and conditions required by this Agreement to be performed, satisfiedor complied with by the Buyer(s) at or prior to such Closing Date.

### 7.     CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.

#### (a)           The obligation of the Buyer(s) hereunder to purchase theConvertible Debentures at the First Closing is subject to the satisfaction, ator before the First Closing Date, of each of the following conditions:

##### (i)            The Company shall have executed the Transaction Documentsand delivered the same to the Buyer(s).

##### (ii)           The Common Stock shall be authorized for quotation on thePrimary Market and trading in the Common Stock shall not have been suspendedfor any reason.

##### (iii)          The representations and warranties of the Company shall betrue and correct in all material respects (except to the extent that any ofsuch representations and warranties is already qualified as to materiality inSection 3 above, in which case, such representations and warranties shall betrue and correct without further qualification) as of the date when made and asof the First Closing Date as though made at that time (except forrepresentations and warranties that speak as of a specific date) and theCompany shall have performed, satisfied and complied in all material respectswith the covenants, agreements and conditions required by this Agreement to beperformed, satisfied or complied with by the Company at or prior to the FirstClosing Date.

##### (iv)          The Company shall have executed and delivered to theBuyer(s) the Convertible Debentures in the respective amounts set forthopposite each Buyer(s) name on Schedule I attached hereto.

##### (v)           The Buyer(s) shall have received an opinion of counselfrom counsel to the Company in a form satisfactory to the Buyer(s).

##### (vi)          The Company shall have provided to the Buyer(s) acertificate of good standing as of a date within 15 days of the date hereoffrom the secretary of state from the state in which the company isincorporated.

##### (vii)         A form UCC-1 or such other forms as may be required toperfect the Buyer’s interest in the Pledged Property as detailed in theSecurity Agreement dated the date hereof shall have been filed.

##### (viii)        The Company shall have provided to the Buyer anacknowledgement, to the satisfaction of the Buyer, from Marcum and Kliegman LLPas to the Company’s ability to provide all consents required in order to file aregistration statement in connection with this transaction.

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##### (ix)           The Company shall have reserved out of its authorized andunissued Common Stock, solely for the purpose of effecting the conversion ofthe Convertible Debentures and exercise of the Warrants, the Initial ShareReserve.

##### (x)            The Irrevocable Transfer Agent Instructions, in form andsubstance satisfactory to the Buyer, shall have been delivered to andacknowledged in writing by the Company’s transfer agent.

#### (b)           The obligation of the Buyer(s) hereunder to accept theConvertible Debentures at the Second Closing is subject to the satisfaction, ator before the Second Closing Date, of each of the following conditions:

##### (i)            The Common Stock shall be authorized for quotation on thePrimary Market and trading in the Common Stock shall not have been suspendedfor any reason, and all the Conversion Shares shall be approved by the PrimaryMarket.

##### (ii)           The representations and warranties of the Company shall betrue and correct in all material respects (except to the extent that any ofsuch representations and warranties is already qualified as to materiality inSection 3 above, in which case, such representations and warranties shall betrue and correct without further qualification) as of the date when made and asof the Second Closing Date as though made at that time (except forrepresentations and warranties that speak as of a specific date) and theCompany shall have performed, satisfied and complied in all material respectswith the covenants, agreements and conditions required by this Agreement to beperformed, satisfied or complied with by the Company at or prior to the SecondClosing Date.

##### (iii)          The Company shall have executed and delivered to theBuyer(s) the Convertible Debentures in the respective amounts set forthopposite each Buyer(s) name on Schedule I attached hereto.

##### (iv)          The Company shall have obtained Stockholder Approval ascontemplated by Section 4(o) hereof.

##### (v)           The Company shall have certified, in a certificateexecuted by two officers of the Company and dated as of the Second ClosingDate, that all conditions to the Second Closing have been satisfied.

##### (vi)          All of the conditions to the First Closing shall have beensatisfied.

#### (c)           The obligation of the Buyer(s) hereunder to accept theConvertible Debentures at the Third Closing is subject to the satisfaction, ator before the Third Closing Date, of each of the following conditions:

##### (i)            The Common Stock shall be authorized for quotation on thePrimary Market and trading in the Common Stock shall not have been suspendedfor any reason, and all the Conversion Shares shall be approved by the PrimaryMarket.

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##### (ii)           The representations and warranties of the Company shall betrue and correct in all material respects (except to the extent that any ofsuch representations and warranties is already qualified as to materiality inSection 3 above, in which case, such representations and warranties shall be trueand correct without further qualification) as of the date when made and as ofthe Third Closing Date as though made at that time (except for representationsand warranties that speak as of a specific date) and the Company shall haveperformed, satisfied and complied in all material respects with the covenants,agreements and conditions required by this Agreement to be performed, satisfiedor complied with by the Company at or prior to the Third Closing Date.

##### (iii)           The Company shall have executed and delivered to theBuyer(s) the Convertible Debentures in the respective amounts set forthopposite each Buyer(s) name on Schedule I attached hereto.

##### (iv)          The Company shall have filed the Registration Statementwith the SEC in compliance with the rules and regulations promulgated by theSEC for filing thereof.

##### (v)           The Registration Statement shall have been declaredeffective by the SEC.

##### (vi)          All of the conditions to the Second Closing shall have beensatisfied.

##### (vii)         The Company shall have certified, in a certificate executedby two officers of the Company and dated as of the Third Closing Date, that allconditions to the Third Closing have been satisfied.

### 8.     INDEMNIFICATION.

#### (a)           In consideration of the Buyer’s execution and delivery ofthis Agreement and acquiring the Convertible Debentures and the ConversionShares hereunder, and in addition to all of the Company’s other obligationsunder this Agreement, the Company shall defend, protect, indemnify and holdharmless the Buyer(s) and each other holder of the Convertible Debentures andthe Conversion Shares, and all of their officers, directors, employees andagents (including, without limitation, those retained in connection withthe transactions contemplated by this Agreement) (collectively, the “BuyerIndemnitees”) from and against any and all actions, causes of action,suits, claims, losses, costs, penalties, fees, liabilities and damages, andexpenses in connection therewith (irrespective of whether any such BuyerIndemnitee is a party to the action for which indemnification hereunder issought), and including reasonable attorneys’ fees and disbursements (the “IndemnifiedLiabilities”), incurred by the Buyer Indemnitees or any of them as a resultof, or arising out of, or relating to (a) any misrepresentation or breach ofany representation or warranty made by the Company in this Agreement, theConvertible Debentures or the Investor Registration Rights Agreement or anyother certificate, instrument or document contemplated

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#### hereby or thereby, (b) any breach of any covenant,agreement or obligation of the Company contained in this Agreement, or theInvestor Registration Rights Agreement or any other certificate, instrument ordocument contemplated hereby or thereby, or (c) any cause of action, suit orclaim brought or made against such Indemnitee and arising out of or resultingfrom the execution, delivery, performance or enforcement of this Agreement orany other instrument, document or agreement executed pursuant hereto by any ofthe parties hereto.  To the extent thatthe foregoing undertaking by the Company may be unenforceable for any reason,the Company shall make the maximum contribution to the payment and satisfactionof each of the Indemnified Liabilities, which is permissible under applicablelaw.

#### (b)           In consideration of the Company’s execution and deliveryof this Agreement, and in addition to all of the Buyer’s other obligationsunder this Agreement, the Buyer shall defend, protect, indemnify and holdharmless the Company and all of its officers, directors, employees and agents(including, without limitation, those retained in connection with thetransactions contemplated by this Agreement) (collectively, the “CompanyIndemnitees”) from and against any and all Indemnified Liabilities incurredby the Indemnitees or any of them as a result of, or arising out of, orrelating to (a) any misrepresentation or breach of any representation orwarranty made by the Buyer(s) in this Agreement, instrument or documentcontemplated hereby or thereby executed by the Buyer, (b) any breach of anycovenant, agreement or obligation of the Buyer(s) contained in thisAgreement,  the Investor RegistrationRights Agreement or any other certificate, instrument or document contemplatedhereby or thereby executed by the Buyer, or (c) any cause of action, suit orclaim brought or made against such Company Indemnitee based on materialmisrepresentations or due to a material breach and arising out of or resultingfrom the execution, delivery, performance or enforcement of this Agreement, theInvestor Registration Rights Agreement or any other instrument, document oragreement executed pursuant hereto by any of the parties hereto.  To the extent that the foregoing undertakingby each Buyer may be unenforceable for any reason, each Buyer shall make themaximum contribution to the payment and satisfaction of each of the IndemnifiedLiabilities, which is permissible under applicable law.

### 9.     GOVERNING LAW: MISCELLANEOUS.

#### (a)           Governing Law. This Agreement shall be governed by and interpreted in accordance withthe laws of the State of New Jersey without regard to the principles ofconflict of laws.  The parties furtheragree that any action between them shall be heard in Hudson County, New Jersey,and expressly consent to the jurisdiction and venue of the Superior Court ofNew Jersey, sitting in Hudson County and the United States District Court forthe District of New Jersey sitting in Newark, New Jersey for the adjudicationof any civil action asserted pursuant to this Paragraph.

#### (b)           Counterparts. This Agreement may be executed in two or more identical counterparts,all of which shall be considered one and the same agreement and shall becomeeffective when counterparts have been signed by each party and delivered to theother party.

#### (c)           Headings.  The headings of this Agreement are forconvenience of reference and shall not form part of, or affect theinterpretation of, this Agreement.

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#### (d)           Severability. If any provision of this Agreement shall be invalid or unenforceable inany jurisdiction, such invalidity or unenforceability shall not affect thevalidity or enforceability of the remainder of this Agreement in thatjurisdiction or the validity or enforceability of any provision of thisAgreement in any other jurisdiction.

#### (e)           Entire Agreement, Amendments.  This Agreement supersedes all other priororal or written agreements between the Buyer(s), the Company, their affiliatesand persons acting on their behalf with respect to the matters discussedherein, and this Agreement and the instruments referenced herein contain theentire understanding of the parties with respect to the matters covered hereinand therein and, except as specifically set forth herein or therein, neitherthe Company nor any Buyer makes any representation, warranty, covenant or undertakingwith respect to such matters.  Noprovision of this Agreement may be waived or amended other than by aninstrument in writing signed by the party to be charged with enforcement.

#### (f)            Notices. Any notices, consents, waivers, or other communications required orpermitted to be given under the terms of this Agreement must be in writing andwill be deemed to have been delivered (i) upon receipt, when deliveredpersonally; (ii) upon confirmation of receipt, when sent by facsimile; (iii)three (3) days after being sent by U.S. certified mail, return receiptrequested, or (iv) one (1) day after deposit with a nationally recognizedovernight delivery service, in each case properly addressed to the party toreceive the same.  The addresses andfacsimile numbers for such communications shall be:

| If to the Company, to: | WorldGate Communications, Inc.  |
|------------------------|---------------------------------|
| ** **             | 3190 Tremont Avenue             |
| ** **             | Trevose, PA 19053               |
|                   | Attention: Joel Boyarski        |
|                   | Telephone:                      | (215) 354-5312 |
|                   | Facsimile:                      | (215) 354-1049 |
|                   |                            |
| With a copy to:        | Drinker Biddle & Reath LLP  |
|                   | 1000 Westlakes Drive, Suite 300 |
|                   | Berwyn, PA 19312-2409           |
|                   | Attention:                      | Walter Mostek |
|                   | Telephone:                      | (610) 993-2233 |
|                   | Facsimile:                      | (610) 993-8585 |

 

If to the Buyer(s), to its address and facsimilenumber on Schedule I, with copies to the Buyer’s counsel as set forth onSchedule I.  Each party shall providefive (5) days’ prior written notice to the other party of any change in addressor facsimile number.

#### (g)           Successorsand Assigns.  This Agreement shall bebinding upon and inure to the benefit of the parties and their respectivesuccessors and assigns.  Neither theCompany nor any Buyer shall assign this Agreement or any rights or obligationshereunder without the prior written consent of the other party hereto.

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#### (h)           NoThird Party Beneficiaries.  ThisAgreement is intended for the benefit of the parties hereto and theirrespective permitted successors and assigns, and is not for the benefit of, normay any provision hereof be enforced by, any other person.

#### (i)            Survival.  The representations and warranties of theCompany and the Buyer(s) contained in Sections 2 and 3, the agreements andcovenants set forth in Sections 4, 5 and 9, and the indemnification provisionsset forth in Section 8, shall survive the Closing for a period of two (2) yearsfollowing the date on which the Convertible Debentures are converted infull.  The Buyer(s) shall be responsibleonly for its own representations, warranties, agreements and covenantshereunder.

#### (j)            Publicity.  The Company and the Buyer(s) shall have theright to approve, before issuance any press release or any other publicstatement with respect to the transactions contemplated hereby made by anyparty; provided, however, that the Company shall be entitled, without the priorapproval of the Buyer(s), to issue any press release or other public disclosurewith respect to such transactions required under applicable securities or otherlaws or regulations (the Company shall use its best efforts to consult theBuyer(s) in connection with any such press release or other public disclosureprior to its release and Buyer(s) shall be provided with a copy thereof uponrelease thereof).

#### (k)           FurtherAssurances.  Each party shall do andperform, or cause to be done and performed, all such further acts and things,and shall execute and deliver all such other agreements, certificates,instruments and documents, as the other party may reasonably request in orderto carry out the intent and accomplish the purposes of this Agreement and theconsummation of the transactions contemplated hereby.

#### (l)            Brokerage.  The Company represents that no broker, agent,finder or other party has been retained by it in connection with thetransactions contemplated hereby and that no other fee or commission has beenagreed by the Company to be paid for or on account of the transactionscontemplated hereby.

#### (m)          NoStrict Construction.  The languageused in this Agreement will be deemed to be the language chosen by the partiesto express their mutual intent, and no rules of strict construction will beapplied against any party.

**[REMAINDERPAGE INTENTIONALLY LEFT BLANK]**

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**IN WITNESS WHEREOF***,* each Buyer and the Company have causedtheir respective signature page to this Securities Purchase Agreement to beduly executed as of the date first written above.
|        | **COMPANY:**                  |
|--------|-------------------------------|
|   | **WORLDGATE COMMUNICATIONS,** |
|   | **INC.**                      |
|   | ** **                    |
|   | By:                           | /s/ Joel Boyarski |
|   | Name:                         | Joel Boyarski |
|   | Title:                        | Chief Financial Officer |

 

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**IN WITNESS WHEREOF***,* each Buyer and the Company have causedtheir respective signature page to this Securities Purchase Agreement to beduly executed as of the date first written above.
|        | **BUYERS:**                      |
|--------|----------------------------------|
|   | **CORNELL CAPITAL PARTNERS, LP** |
|   |                             |
|   | By:                              | Yorkville Advisors, LLC |
|   | Its:                             | General Partner |
|   |                             |
|   |                             |
|   | By:                              | /s/ Mark Angelo |
|   | Name:                            | Mark Angelo |
|   | Its:                             | Portfolio Manager |

 

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**SCHEDULE I**

**SCHEDULE OF BUYERS**

 
| (1)                               | ** ** | **(2)**                                                                                                                                                        | ** ** | **(3)**                      | ** ** | **(4)**                 | ** ** | **(5)**                     | ** ** | **(6)**                        | ** ** | **(7)**                                           | ** ** | **(8)**    | ** ** | **(9)**                            | ** ** |
|-----------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-------------------------|------------|-----------------------------|------------|--------------------------------|------------|---------------------------------------------------|------------|------------|------------|------------------------------------|------------|
| ** **                        | ** ** | **Address and Facsimile**                                                                                                                            | ** ** | **Subscription Amount** | ** ** | **Purchase**            | ** ** | **Number of  Warrant** | ** ** | **Number of  Commitment** | ** ** | **Legal Representative’s Address** | ** ** |
| **Buyer**                         | ** ** | **Number**                                                                                                                                                     | ** ** | **First Closing**       | ** ** | **Second Closing** | ** ** | **Third Closing**      | ** ** | **Price**                      | ** ** | **Shares**                                        | ** ** | **Shares** | ** ** | **and Facsimile Number** | ** ** |
| **Cornell Capital  Partners, LP** |       | 101  Hudson Street Suite 3700  Jersey City, NJ 07303  Attention: Mark Angelo  Facsimile: (201)  985-8266  Telephone: (201)  985-8300  Residence: Delaware |       | $                            | 6,000,000  |                    | $          | 3,000,000                   |       | $                              | 2,000,000  |                                              | $          | 11,000,000 |       | 2,595,000                          |       | 177,419 |   | David  Gonzalez, Esq.  101 Hudson Street — Suite 3700  Jersey City, New Jersey 07302  Telephone: (201) 985-8300  Facsimile: (201) 985-8266 |   |
| **TOTAL**                         |       |                                                                                                                                                           |       |                         |       |                    |       |                        |       |                           |       |                                              |       |       |       |                               |       |
|                                   |            |                                                                                                                                                                |            |                              |            |                         |            |                             |            |                                |            |                                                   |            |            |            |                                    |            |  |  |  |  |

 

----

**SCHEDULE II**

**WARRANT ALLOCATION**

 
| ** **                       | ** ** | **Number of Warrant Shares/Warrant Exercise Price** | ** ** |
|----------------------------------|------------|------------------------------------------------------------------------------|------------|
| **Buyer**                        | ** ** | **First Closing**                                                       | ** ** | **Second Closing** | ** ** | **TOTAL** | ** ** |
|                             |       |                                                                         |       |   |   |   |   |
| **Cornell Capital Partners, LP** |       | 624,545/$1.85  600,000/$2.35  190,909/$2.60                                  |       | 520,455/$1.85  500,000/$2.35  159,091/$2.60 |   | 1,145,000/$1.85  1,100,000/$2.35  350,000/$2.60 |   |

 

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**DISCLOSURESCHEDULE**

The sections of thisDisclosure Schedule relate to the corresponding sections of the SecuritiesPurchase Agreement (the “Agreement”), dated as of August 11, 2006, byand among WORLDGATE COMMUNICATIONS,INC., a Delaware corporation (the “Company”), and the Buyerslisted on Schedule I attached thereto. Capitalized terms not defined herein shall have the meaning ascribed tothem in the Agreement.

Section 3(c):                           The following registrationstatements of the Company are outstanding:

1.             RegistrationStatement No. 333-117641,2.             Registration Statement No.333-129109, and3.             Registration Statement No.333-125205.

The SEC has requested that the Company file an amendment to its CurrentReport on Form 8-K, filed on November 23, 2005, to provide the effective datefor the resignation of Grant Thornton LLP as the Company’s independentregistered public accounting firm.

The Company has a board approved equity incentive plan from whichgrants can be and are made to consultants, employees and directors.

The Company has entered into an agreement with a third party consultantwith respect to strategic introductions to third parties selected by theCompany and with whom the consultant has a pre-existing relationship.  Under the terms of this contract the Companyhas agreed to pay the consultant a success-based introduction fee if theintroduced party ultimately concludes a business relationship with the Company.  This fee will be based upon the extent of thebusiness relationship and can be paid in non-registered common stock (withpiggyback rights) or stock options.  Nofees have been earned to date.

Section 3(d):                             As of the date hereof, theCompany has reserved 7,775,752 shares of its common stock, par value $0.01, forissuance upon conversion of the Convertible Debentures and exercise of theWarrants.

Section 3(e):                              As provided in theRegistration Rights Agreement, the Company is required to file a registrationstatement with the SEC in regard to the Conversion Shares, Warrant Shares andCommitment Shares.

In accordance with its reporting requirements under the SecuritiesExchange Act of 1934, as amended, the Company is required to report to the SECthe sale of its securities as contemplated by the Transaction Documents.

Section 3(f):                                The SEC has requestedthat the Company file an amendment to its Current Report on Form 8-K, filed onNovember 23, 2005, to provide the effective date for the resignation of GrantThornton LLP as the Company’s independent registered

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public accounting firm.

On November 14, 2005, the Company filed a Current Report on Form 8-Kannouncing that investors should not rely on the its Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004 or its Quarterly Reports on Form10-Q from the first quarter of 2004 through the second quarter of 2005 pendingthe release of amendments to such reports (the “Amendments”).  On January 24, 2006, the Company filed theAmendments.

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**EXHIBIT A**

**FORM OF WARRANT**

**WARRANT**

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOTBEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLESTATE SECURITIES LAWS.  THE SECURITIESHAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERREDOR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATESECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TOTHE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATESECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THIS WARRANTMAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT.

**WORLDGATE COMMUNICATIONS,INC.**

**Warrant To PurchaseCommon Stock**
| Warrant No.: WGAT-[    ] |   | Number of Shares:       |       | **[                ]** | ** ** |
|-----------------------------------------|--------|-------------------------|------------|----------------------------------------------------------------------------------------------|------------|
|                                    |   | Warrant Exercise Price: | ** ** | **[$           ]**                    |       |
|                                    |   | Expiration Date:        |       | August       , 2011                                            |       |

 

Date of Issuance: August   , 2006

WorldGateCommunications, Inc., a Delaware corporation (the “Company”), herebycertifies that, for good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, **CornellCapital Partners, LP** (the “Holder”), the registered holderhereof or its permitted assigns, is entitled, subject to the terms set forthbelow, to purchase from the Company upon surrender of this Warrant, at any timeor times on or after the date hereof, but not after 11:59 P.M. EasternTime on the Expiration Date (as defined herein) **[             ]** fully paid andnonassessable shares of Common Stock (as defined herein) of the Company (the “WarrantShares”) at the exercise price per share provided in Section 1(b)below or as subsequently adjusted; provided, however, that in no event shallthe Holder be entitled to exercise this Warrant for a number of Warrant Sharesin excess of that number of Warrant Shares which, upon giving effect to suchexercise, would cause the aggregate number of shares of Common Stockbeneficially owned by the Holder and its affiliates to exceed 4.99% of theoutstanding shares of the Common Stock following such exercise, except withinsixty (60) days of the Expiration Date (however, such restriction may be waivedby Holder (but only as to itself and not to any other holder) upon not lessthan 65 days prior notice to the Company). For purposes of the foregoing proviso, the aggregate number of shares ofCommon Stock beneficially owned by the Holder and its affiliates shall includethe number of shares of Common Stock issuable upon exercise of this Warrantwith respect to which the determination of such proviso is being made, butshall exclude

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shares of Common Stockwhich would be issuable upon (i) exercise of the remaining, unexercisedWarrants beneficially owned by the Holder and its affiliates and(ii) exercise or conversion of the unexercised or unconverted portion ofany other securities of the Company beneficially owned by the Holder and itsaffiliates (including, without limitation, any convertible notes or preferredstock) subject to a limitation on conversion or exercise analogous to thelimitation contained herein.  Except asset forth in the preceding sentence, for purposes of this paragraph, beneficialownership shall be calculated in accordance with Section 13(d) of theSecurities Exchange Act of 1934, as amended. For purposes of this Warrant, in determining the number of outstandingshares of Common Stock, the Holder may rely on the number of outstanding sharesof Common Stock as reflected in (1) the Company’s most recent Form 10-Q or Form10-K, as the case may be, (2) a more recent public announcement by the Companyor (3) any other notice by the Company or its transfer agent setting forth thenumber of shares of Common Stock outstanding. Upon the written request of the Holder, the Company shall promptly, butin no event later than one (1) Business Day following the receipt of suchnotice, confirm in writing to the Holder the number of shares of Common Stockthen outstanding.  In any case, thenumber of outstanding shares of Common Stock shall be determined after givingeffect to the exercise of Warrants (as defined below) by the Holder and itsaffiliates since the date as of which such number of outstanding shares ofCommon Stock was reported.

#### This Warrantis one of the warrants issued pursuant to Section 4(g) of the SecuritiesPurchase Agreement (“Securities Purchase Agreement”) dated the datehereof between the Company and the Buyers listed on Schedule I thereto orissued in exchange or substitution thereafter or replacement thereof.  Each Capitalized term used, and not otherwisedefined herein, shall have the meaning ascribed thereto in the SecuritiesPurchase Agreement.

#### Definitions.  The following words and terms as used in thisWarrant shall have the following meanings:

##### “ApprovedStock Plan” means any stock or option or other incentive plan that has beenduly adopted by a majority of the non-employee members of the Board ofDirectors of the Company, or a majority of the members of a committee ofnon-employee directors established for such purpose, pursuant to which theCompany’s securities may be issued to consultants, employees, officers ordirectors of the Company.

#####  “Business Day” means any day other thanSaturday, Sunday or other day on which commercial banks in the City of New Yorkare authorized or required by law to remain closed.

##### “CommonStock” means (i) the Company’s common stock, par value $0.01 pershare, and (ii) any capital stock into which such Common Stock shall havebeen changed or any capital stock resulting from a reclassification of suchCommon Stock.

##### “Event ofDefault” means an event of default under the Securities Purchase Agreementor the Convertible Debentures issued in connection therewith.

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##### “ExcludedSecurities” means (a) shares of Common Stock issued or deemed to have beenissued pursuant to an Approved Stock Plan; (b) shares of Common Stock issued ordeemed to be issued by the Company upon the conversion, exchange or exercise ofany right, option, obligation or security outstanding on the date of theSecurities Purchase Agreement; provided that (1) the terms of such right,option, obligation or security are not amended or otherwise modified on orafter the date of the Securities Purchase Agreement, and (2) the conversionprice, exchange price, exercise price or other purchase price is not reduced,adjusted or otherwise modified (except by operation of, or in accordance with,the relevant governing documents) and the number of shares of Common Stockissued or issuable is not increased (except by operation of, or in accordancewith, the relevant governing documents) on or after the date of the SecuritiesPurchase Agreement; and provided further that, notwithstanding anything to thecontrary set forth herein, the term “Excluded Securities” shall include,subject to the consent of the Holder which shall not be unreasonably withheld,shares of Common Stock issued or deemed to be issued by the Company upon theexercise of additional investment rights issued or issuable by the Company insatisfaction of claims against the Company by the investors party to theprivate placement of the Company’s securities on August 3, 2005; (c) theshares of Common Stock issued or deemed to be issued by the Company uponexercise of this Warrant and any other warrants issued pursuant to theSecurities Purchase Agreement or upon conversion of the Convertible Debentures;and (d) shares of Common Stock issued or deemed to have been issued pursuant toany strategic transaction with a third party Person in connection with the businessof the Company, which transaction is not primarily for the purpose of raisingcapital for the Company.

##### “ExpirationDate” means August     , 2011.

##### “IssuanceDate” means the date hereof.

##### “Options”means any rights, warrants or options to subscribe for or purchase Common Stockor Convertible Securities.

#####  “Person” means an individual, a limitedliability company, a partnership, a joint venture, a corporation, a trust, anunincorporated organization and a government or any department or agencythereof.

##### “PrincipalMarket” means on any of (a) the American Stock Exchange, (b) New York StockExchange, (c) the Nasdaq National Market, (d) the Nasdaq Capital Market, or (e)the Nasdaq OTC Bulletin Board (“OTCBB”)

##### “SecuritiesAct” means the Securities Act of 1933, as amended.

##### “VolumeWeighted Average Price” means, with respect to a trading day, the volumeweighted average price of the Common Stock for such trading day as quoted byBloomberg Financial Markets (“Bloomberg”).

#####  “Warrant” means this Warrant and allWarrants issued in exchange, transfer or replacement thereof.

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##### “WarrantExercise Price” shall be **[           ]** or as subsequentlyadjusted as provided in Section 8 hereof.

#### OtherDefinitional Provisions.

##### Except asotherwise specified herein, all references herein (A) to the Company shallbe deemed to include the Company’s successors and (B) to any applicablelaw defined or referred to herein shall be deemed references to such applicablelaw as the same may have been or may be amended or supplemented from time to time.

##### When used inthis Warrant, the words “herein”, “hereof”, and “hereunder**”** and words of similar import, shall refer to this Warrantas a whole and not to any provision of this Warrant, and the words “Section”,“Schedule”, and “Exhibit” shall refer to Sections of, andSchedules and Exhibits to, this Warrant unless otherwise specified.

##### Whenever thecontext so requires, the neuter gender includes the masculine or feminine, andthe singular number includes the plural, and vice versa.

### Exercise of Warrant.

#### Subject to theterms and conditions hereof, this Warrant may be exercised by the holder hereofthen registered on the books of the Company, pro rata as hereinafter provided,at any time on any Business Day on or after the opening of business on suchBusiness Day, commencing with the first day after the date hereof, and prior to11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of awritten notice, in the form of the subscription notice attached as Exhibit Ahereto (the “Exercise Notice”), of such holder’s election to exercisethis Warrant, which notice shall specify the number of Warrant Shares to bepurchased, payment to the Company of an amount equal to the WarrantExercise Price(s) applicable to the Warrant Shares being purchased multipliedby the number of Warrant Shares (at the applicable Warrant Exercise Price)as to which this Warrant is being exercised (plus any applicable issue ortransfer taxes) (the “Aggregate Exercise Price”) in cash or wiretransfer of immediately available funds and the surrender of this Warrant (oran indemnification undertaking with respect to this Warrant in the case of itsloss, theft or destruction) to a common carrier for overnight delivery to theCompany as soon as practicable following such date (“Cash Basis”) or(ii) if at the time of exercise, the Warrant Shares are not subject to aneffective registration statement or if an Event of Default has occurred, bydelivering an Exercise Notice and in lieu of making payment of the AggregateExercise Price in cash or wire transfer, elect instead to receive upon suchexercise the “Net Number” of shares of Common Stock determined according to thefollowing formula (the “Cashless Exercise”):

Net Number = (A x B) —(A x C)

                                     B

For purposes of the foregoing formula:

A = the total number of Warrant Shares with respect to which thisWarrant is then being exercised.

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B = the Volume Weighted Average Price of the Common Stock on the dateof exercise of the Warrant.

C = the Warrant Exercise Price then in effect for the applicableWarrant Shares at the time of such exercise.

### In the event of any exercise of the rights represented by this Warrantin compliance with this Section 2, the Company shall on or before thefifth (5th) Business Day following the date of receipt of the ExerciseNotice, the Aggregate Exercise Price and this Warrant (or an indemnificationundertaking with respect to this Warrant in the case of its loss, theft ordestruction) and the receipt of the representations of the Holder specified inSection 6 hereof, if requested by the Company (the “Exercise DeliveryDocuments”), and if the Common Stock is DTC eligible, credit such aggregatenumber of shares of Common Stock to which the Holder shall be entitled to theHolder’s or its designee’s balance account with The Depository Trust Company;provided, however, if the Holder who submitted the Exercise Notice requestedphysical delivery of any or all of the Warrant Shares, or, if the Common Stockis not DTC eligible then the Company shall, on or before the fifth (5th) Business Day followingreceipt of the Exercise Delivery Documents, issue and surrender to a commoncarrier for overnight delivery to the address specified in the Exercise Notice,a certificate, registered in the name of the Holder, for the number of sharesof Common Stock to which the Holder shall be entitled pursuant to suchrequest.  Upon delivery of the ExerciseNotice and Aggregate Exercise Price referred to in clause (i) or (ii)above, the Holder shall be deemed for all corporate purposes to have become theholder of record of the Warrant Shares with respect to which this Warrant hasbeen exercised.  In the case of a disputeas to the determination of the Warrant Exercise Price, the Volume WeightedAverage Price or the arithmetic calculation of the Warrant Shares, the Companyshall promptly issue to the Holder the number of Warrant Shares that is notdisputed and shall submit the disputed determinations or arithmeticcalculations to the Holder via facsimile within three (3) Business Days ofreceipt of the Holder’s Exercise Notice.

#### If the Holderand the Company are unable to agree upon the determination of the WarrantExercise Price or arithmetic calculation of the Warrant Shares within one (1)day of such disputed determination or arithmetic calculation being submitted tothe Holder, then the Company shall immediately submit via facsimile (i) thedisputed determination of the Warrant Exercise Price or the Volume WeightedAverage Price to an independent, reputable investment banking firm or (ii) thedisputed arithmetic calculation of the Warrant Shares to its independent,outside accountant.  The Company shallcause the investment banking firm or the accountant, as the case may be, to performthe determinations or calculations and notify the Company and the Holder of theresults no later than forty-eight (48) hours from the time it receives thedisputed determinations or calculations. Such investment banking firm’s or accountant’s determination orcalculation, as the case may be, shall be deemed conclusive absent manifesterror.

#### Unless therights represented by this Warrant shall have expired or shall have been fullyexercised, the Company shall, as soon as practicable and in no event later thanfive (5) Business Days after any exercise and at its own expense, issue a newWarrant identical in all respects to this Warrant exercised except it shallrepresent rights to purchase the number of

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####  

#### Warrant Shares purchasable immediately priorto such exercise under this Warrant exercised, less the number of WarrantShares with respect to which such Warrant is exercised.

#### No fractionalWarrant Shares are to be issued upon any pro rata exercise of this Warrant, butrather the number of Warrant Shares issued upon such exercise of this Warrantshall be rounded up or down to the nearest whole number.

#### If the Companyor its Transfer Agent shall fail for any reason or for no reason to issue tothe Holder within ten (10) days of receipt of the Exercise DeliveryDocuments, a certificate for the number of Warrant Shares to which the Holderis entitled or to credit the Holder’s balance account with The Depository TrustCompany for such number of Warrant Shares to which the Holder is entitled uponthe Holder’s exercise of this Warrant, the Company shall, in addition to anyother remedies under this Warrant or otherwise available to the Holder, pay asadditional damages in cash to the Holder on each day the issuance of suchcertificate for Warrant Shares is not timely effected an amount equal to 0.025%of the product of (A) the sum of the number of Warrant Shares not issued to theHolder on a timely basis and to which the Holder is entitled, and (B) theVolume Weighted Average Price of the Common Stock for the trading dayimmediately preceding the last possible date which the Company could haveissued such Common Stock to the Holder without violating this Section 2.

#### If within ten(10) days after the Company’s receipt of the Exercise Delivery Documents, theCompany fails to deliver a new Warrant to the Holder for the number of WarrantShares to which the Holder is entitled pursuant to Section 2 hereof, then, inaddition to any other available remedies under this Warrant, or otherwiseavailable to the Holder, the Company shall pay as additional damages in cash tothe Holder on each day after such tenth (10th) day that such delivery of such newWarrant is not timely effected in an amount equal to **0.015**% of the product of (A) the number of Warrant Sharesrepresented by the portion of this Warrant which is not being exercised and(B) the Volume Weighted Average Price of the Common Stock for the tradingday immediately preceding the last possible date which the Company could haveissued such Warrant to the Holder without violating this Section 2.

### Covenants as to Common Stock.  The Company hereby covenants and agrees asfollows:

#### This Warrantis, and any Warrants issued in substitution for or replacement of this Warrantwill upon issuance be, duly authorized and validly issued.

#### All WarrantShares which may be issued upon the exercise of the rights represented by thisWarrant will, upon issuance, be validly issued, fully paid and nonassessableand free from all taxes, liens and charges with respect to the issue thereof.

#### During theperiod within which the rights represented by this Warrant may be exercised,the Company will at all times have authorized and reserved at least one hundredpercent (100%) of the number of shares of Common Stock needed to provide forthe exercise of the rights then represented by this Warrant and the par valueof said shares will at all times be less than or equal to the applicableWarrant Exercise Price.  If at any timethe Company does not have a sufficient number of shares of Common Stock authorizedand available, then the

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####  

#### Company shall call and hold a meeting of itsstockholders within one hundred twenty (120) days of that time for thepurpose of increasing the number of authorized shares of Common Stock.

#### The Companywill not, by amendment of its Certificate of Incorporation or through any reorganization,transfer of assets, consolidation, merger, dissolution, issue or sale ofsecurities, or any other voluntary action, avoid or seek to avoid theobservance or performance of any of the terms to be observed or performed by ithereunder, but will at all times in good faith assist in the carrying out ofall the provisions of this Warrant and in the taking of all such action as mayreasonably be requested by the Holder in order to protect the exerciseprivilege of the Holder against dilution or other impairment, consistent withthe tenor and purpose of this Warrant. The Company will not increase the par value of any shares of CommonStock receivable upon the exercise of this Warrant above the Warrant ExercisePrice then in effect, and (ii) will take all such actions as may benecessary or appropriate in order that the Company may validly and legallyissue fully paid and nonassessable shares of Common Stock upon the exercise ofthis Warrant.

#### This Warrantwill be binding upon any entity succeeding to the Company by merger,consolidation or acquisition of all or substantially all of the Company’sassets.

### Taxes. The Company shall pay any and all taxes, except any applicablewithholding, which may be payable with respect to the issuance and delivery ofWarrant Shares upon exercise of this Warrant.

### Warrant Holder Not Deemed a Stockholder.  Except as otherwise specifically providedherein, no holder, as such, of this Warrant shall be entitled to vote orreceive dividends or be deemed the holder of shares of capital stock of theCompany for any purpose, nor shall anything contained in this Warrant beconstrued to confer upon the holder hereof, as such, any of the rights of astockholder of the Company or any right to vote, give or withhold consent toany corporate action (whether any reorganization, issue of stock,reclassification of stock, consolidation, merger, conveyance or otherwise),receive notice of meetings, receive dividends or subscription rights, orotherwise, prior to the issuance to the holder of this Warrant of the WarrantShares which he or she is then entitled to receive upon the due exercise ofthis Warrant.  In addition, nothingcontained in this Warrant shall be construed as imposing any liabilities onsuch holder to purchase any securities (upon exercise of this Warrant orotherwise) or as a stockholder of the Company, whether such liabilities areasserted by the Company or by creditors of the Company.  Notwithstanding this Section 5, the Companywill provide the holder of this Warrant with copies of the same notices andother information given to the stockholders of the Company generally,contemporaneously with the giving thereof to the stockholders.

### Representations of Holder.  The Holder, by the acceptance hereof,represents that it is acquiring this Warrant and the Warrant Shares for its ownaccount for investment only and not with a view towards, or for resale inconnection with, the public sale or distribution of this Warrant or the WarrantShares, except pursuant to sales registered or exempted under the SecuritiesAct; provided, however, that by making the representations herein, the Holderdoes not agree to hold this Warrant or any of the Warrant Shares for anyminimum or other specific term and reserves the right to dispose of this Warrantand the Warrant Shares at any time in accordance with or pursuant to aregistration statement or an exemption under the Securities Act.

 

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### The Holderfurther represents, by acceptance hereof, that, as of this date, the Holder isan “accredited investor” as such term is defined in Rule 501(a)(1) ofRegulation D promulgated by the Securities and Exchange Commission under theSecurities Act (an “Accredited Investor”).  Upon exercise of this Warrant, the Holdershall, if requested by the Company, confirm in writing, in a form satisfactoryto the Company, that the Warrant Shares so purchased are being acquired solelyfor the Holder’s own account and not as a nominee for any other party, forinvestment, and not with a view toward distribution or resale and that theHolder is an Accredited Investor.  If theHolder cannot make such representations because they would be factuallyincorrect, it shall be a condition to the Holder’s exercise of this Warrantthat the Company receive such other representations as the Company considersreasonably necessary to assure the Company that the issuance of its securitiesupon exercise of this Warrant shall not violate any United States or statesecurities laws.

### Ownership and Transfer.

#### The Companyshall maintain at its principal executive offices (or such other office oragency of the Company as it may designate by notice to the holder hereof), aregister for this Warrant, in which the Company shall record the name andaddress of the person in whose name this Warrant has been issued, as well asthe name and address of each transferee. The Company may treat the person in whose name any Warrant is registeredon the register as the owner and holder thereof for all purposes,notwithstanding any notice to the contrary, but in all events recognizing anytransfers made in accordance with the terms of this Warrant.

### Adjustment of Warrant Exercise Price and Number of Shares.  The Warrant Exercise Price and the number ofshares of Common Stock issuable upon exercise of this Warrant shall be adjustedfrom time to time as follows:

#### Adjustment ofWarrant Exercise Price and Number of Shares upon Issuance of Common Stock.  If and whenever on or after the Issuance Dateof this Warrant, the Company issues or sells, or is deemed to have issued orsold, any shares of Common Stock (other than Excluded Securities) for aconsideration per share less than a price (the “Applicable Price”) equalto the Warrant Exercise Price in effect immediately prior to such issuance orsale (a “Dilutive Issuance”), then, effective immediately upon theDilutive Issuance, the Warrant Exercise Price shall be adjusted so as to equalan amount determined by multiplying such Warrant Exercise Price by thefollowing fraction:

|        |   | N0 + N1 |   |   |
|--------|--------|--------------|--------|--------|
|   |   | N0 + N2 |   |   |
|   |   |         |   |   |

 

where:
|  |   |      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|--------|-----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |   | N0 = |   | the number of shares of Common Stock outstanding  immediately prior to the issuance or sale, or deemed issuance or sale, of  such additional shares of Common Stock in such Dilutive Issuance (without  taking into account any shares of Common Stock issuable upon conversion,  exchange or exercise of any securities or other instruments which are  convertible into or exercisable or exchangeable for Common Stock (“Convertible  Securities”) or options, warrants or other rights to purchase or  subscribe for Common Stock or Convertible Securities, other than shares of  Common Stock issuable upon conversion of the Convertible Debentures or  exercise of the Warrants, which shall be taken into account in determining  such number; |

 

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|        |   | N1 = |   | the number of shares of Common Stock which the  aggregate consideration, if any, received or receivable by the Company for  the total number of such additional shares of Common Stock so issued, sold or  deemed issued or sold in such Dilutive Issuance would purchase at the Warrant  Exercise Price in effect immediately prior to such Dilutive Issuance; and |
|--------|--------|-----------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |      |   |                                                                                                                                                                                                                                                                                                                                                                |
|   |   | N2 = |   | the number of such additional shares of Common Stock  so issued, sold or deemed issued or sold in such Dilutive Issuance.                                                                                                                                                                                                                                           |

####  

#### Upon each such adjustment of the Warrant Exercise Price hereunder, thenumber of Warrant Shares issuable upon exercise of this Warrant shall beadjusted to the number of shares determined by multiplying the Warrant ExercisePrice in effect immediately prior to such adjustment by the number of WarrantShares issuable upon exercise of this Warrant immediately prior to suchadjustment and dividing the product thereof by the Warrant Exercise Priceresulting from such adjustment.

#### Effect onWarrant Exercise Price of Certain Events.  For purposes of determining the adjustedWarrant Exercise Price under Section 8(a) above, the following shall beapplicable:

##### Issuance of Options.  If, after the date hereof, the Company in anymanner grants any Options (other than pursuant to an Approved Stock Plan) andthe lowest price per share for which one share of Common Stock is issuable uponthe exercise of any such Option or upon conversion or exchange of anyconvertible securities issuable upon exercise of any such Option is less thanthe Applicable Price, then such share of Common Stock shall be deemed to beoutstanding and to have been issued and sold by the Company at the time of thegranting or sale of such Option for such price per share.  For purposes of this Section 8(b)(i), thelowest price per share for which one share of Common Stock is issuable uponexercise of such Options or upon conversion or exchange of such ConvertibleSecurities shall be equal to the sum of the lowest amounts of consideration (ifany) received or receivable by the Company with respect to any one share ofCommon Stock upon the granting or sale of the Option, upon exercise of theOption or upon conversion or exchange of any convertible security issuable uponexercise of such Option.  No furtheradjustment of the Warrant Exercise Price shall be made upon the actual issuanceof such Common Stock or of such convertible securities upon the exercise ofsuch Options or upon the actual issuance of such Common Stock upon conversionor exchange of such convertible securities.

##### Issuance of Convertible Securities.  If the Company in any manner issues or sellsany convertible securities (other than Excluded Securities) and the lowestprice per share for which one share of Common Stock is issuable upon theconversion or exchange thereof is

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##### less than theApplicable Price, then such share of Common Stock shall be deemed to beoutstanding and to have been issued and sold by the Company at the time of theissuance or sale of such convertible securities for such price per share.  For the purposes of thisSection 8(b)(ii), the lowest price per share for which one share of CommonStock is issuable upon such conversion or exchange shall be equal to the sum ofthe lowest amounts of consideration (if any) received or receivable by theCompany with respect to one share of Common Stock upon the issuance or sale ofthe convertible security and upon conversion or exchange of such convertiblesecurity.  No further adjustment of theWarrant Exercise Price shall be made upon the actual issuance of such CommonStock upon conversion or exchange of such convertible securities, and if any suchissue or sale of such convertible securities is made upon exercise of anyOptions for which adjustment of the Warrant Exercise Price had been or are tobe made pursuant to other provisions of this Section 8(b), no furtheradjustment of the Warrant Exercise Price shall be made by reason of such issueor sale.

##### Change in Option Price or Rate of Conversion.  If the purchase price provided for in anyOptions, the additional consideration, if any, payable upon the issue,conversion or exchange of any convertible securities, or the rate at which anyconvertible securities are convertible into or exchangeable for Common Stock(other than with respect to Excluded Securities) changes at any time, theWarrant Exercise Price in effect at the time of such change shall be adjustedto the Warrant Exercise Price which would have been in effect at such time hadsuch Options or convertible securities provided for such changed purchaseprice, additional consideration or changed conversion rate, as the case may be,at the time initially granted, issued or sold and the number of Warrant Sharesissuable upon exercise of this Warrant shall be correspondinglyreadjusted.  For purposes of this Section8(b)(iii), if the terms of any Option or convertible security that wasoutstanding as of the Issuance Date of this Warrant are changed in the mannerdescribed in the immediately preceding sentence, then such Option orconvertible security and the Common Stock deemed issuable upon exercise,conversion or exchange thereof shall be deemed to have been issued as of thedate of such change.  No adjustmentpursuant to this Section 8(b) shall be made if such adjustment wouldresult in an increase of the Warrant Exercise Price then in effect.

##### Calculation of Consideration Received.  If any Common Stock, Options or convertiblesecurities are issued or sold or deemed to have been issued or sold for cash,the consideration received therefore will be deemed to be the net amountreceived by the Company therefore.  Ifany Common Stock, Options or convertible securities are issued or sold for aconsideration other than cash, the amount of such consideration received by theCompany will be the fair value of such consideration, except where suchconsideration consists of marketable securities, in which case the amount ofconsideration received by the Company will be the market price of suchsecurities on the date of receipt of such securities.  If any Common Stock, Options or convertiblesecurities are issued to the owners of the non-surviving entity in connectionwith any merger in which the Company is the surviving entity, the amount ofconsideration therefore will be deemed to be the fair value of such portion ofthe net assets and business of the non-surviving entity as is attributable tosuch Common Stock, Options or convertible securities, as the case may be.  The fair value of any consideration otherthan cash or securities will be determined jointly by the Company and theholders of Warrants representing at least two-thirds of the Warrant Sharesissuable upon exercise of the Warrants then outstanding.  If such parties are unable to reach agreementwithin ten (10) days after the occurrence of an

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##### eventrequiring valuation (the “Valuation Event”), the fair value of suchconsideration will be determined within five (5) Business Days after thetenth (10th)day following the Valuation Event by an independent, reputable appraiserjointly selected by the Company and the holders of Warrants representing atleast two-thirds of the Warrant Shares issuable upon exercise of the Warrantsthen outstanding.  The determination ofsuch appraiser shall be final and binding upon all parties and the fees andexpenses of such appraiser shall be borne jointly by the Company and the holdersof Warrants.

##### Integrated Transactions.  In case any Option is issued in connectionwith the issue or sale of other securities of the Company, together comprisingone integrated transaction in which no specific consideration is allocated tosuch Options by the parties thereto, the Options will be deemed to have beenissued for a consideration of $.01.

##### Treasury Shares.  The number of shares of Common Stockoutstanding at any given time does not include shares owned or held by or forthe account of the Company, and the disposition of any shares so owned or heldwill be considered an issue or sale of Common Stock.

##### Record Date. If the Company takes a record of the holders of Common Stock for thepurpose of entitling them (1) to receive a dividend or other distributionpayable in Common Stock, Options or in convertible securities or (2) tosubscribe for or purchase Common Stock, Options or convertible securities, thensuch record date will be deemed to be the date of the issue or sale of theshares of Common Stock deemed to have been issued or sold upon the declarationof such dividend or the making of such other distribution or the date of thegranting of such right of subscription or purchase, as the case may be.

#### Adjustment ofWarrant Exercise Price upon Subdivision or Combination of Common Stock.  If the Company at any time after the date ofissuance of this Warrant subdivides (by any stock split, stock dividend,recapitalization or otherwise) one or more classes of its outstanding shares ofCommon Stock into a greater number of shares, any Warrant Exercise Price ineffect immediately prior to such subdivision will be proportionately reducedand the number of shares of Common Stock obtainable upon exercise of thisWarrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrantcombines (by combination, reverse stock split or otherwise) one or more classesof its outstanding shares of Common Stock into a smaller number of shares, anyWarrant Exercise Price in effect immediately prior to such combination will beproportionately increased and the number of Warrant Shares issuable uponexercise of this Warrant will be proportionately decreased.  Any adjustment under this Section 8(c)shall become effective at the close of business on the date the subdivision orcombination becomes effective.

#### Distributionof Assets.  Ifthe Company shall declare or make any dividend or other distribution of itsassets (or rights to acquire its assets) to holders of Common Stock, by way ofreturn of capital or otherwise (including, without limitation, any distributionof cash, stock or other securities, property or options by way of a dividend,spin off, reclassification, corporate rearrangement or other similartransaction) (a “Distribution”), at any time after the issuance of thisWarrant, then, in each such case:

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any WarrantExercise Price in effect immediately prior to the close of business on therecord date fixed for the determination of holders of Common Stock entitledtoreceive the Distribution shall be reduced, effective as of the close ofbusiness on such record date, to a price determined by multiplying such WarrantExercise Price by a fraction of which (A) the numerator shall be the ClosingSale Price of the Common Stock on the trading day immediately preceding suchrecord date minus the value of the Distribution (as determined in good faith bythe Company’s Board of Directors) applicable to one share of Common Stock, and(B) the denominator shall be the Closing Sale Price of the Common Stock on thetrading day immediately preceding such record date; and

##### in the eventthat the Distribution is of common stock of a company whose common stock istraded on a national securities exchange or a national automated quotationsystem, then the holder of this Warrant shall receive an additional warrant topurchase Common Stock, the terms of which shall be identical to those of thisWarrant, except that such warrant shall be exercisable into the amount of theassets that would have been payable to the holder of this Warrant pursuant tothe Distribution had the holder exercised this Warrant immediately prior tosuch record date and with an exercise price equal to the amount by which theexercise price of this Warrant was decreased with respect to the Distributionpursuant to the terms of the immediately preceding clause (i).

#### Certain Events.  If any event occurs of the type contemplatedby the provisions of this Section 8 but not expressly provided for by suchprovisions (including, without limitation, the granting of stock appreciationrights, phantom stock rights or other rights with equity features), other thanpursuant to an Approved Plan, then the Company’s Board of Directors will makean appropriate adjustment in the Warrant Exercise Price and the number ofshares of Common Stock obtainable upon exercise of this Warrant so as toprotect the rights of the holders of the Warrants; provided, except as setforth in section 8(c).

#### Notices.

##### Promptly uponany adjustment of the Warrant Exercise Price, the Company will give writtennotice thereof to the holder of this Warrant, setting forth in reasonabledetail, and certifying, the calculation of such adjustment.

##### The Companywill give written notice to the holder of this Warrant at least ten (10) daysprior to the date on which the Company closes its books or takes a record(A) with respect to any dividend or distribution upon the Common Stock,(B) with respect to any pro rata subscription offer to holders of CommonStock or (C) for determining rights to vote with respect to any OrganicChange (as defined below), dissolution or liquidation, provided that suchinformation shall be made known to the public prior to or in conjunction withsuch notice being provided to such holder.

##### The Companywill also give written notice to the holder of this Warrant at least ten (10)days prior to the date on which any Organic Change, dissolution or liquidationwill take place, provided that such information shall be made known to thepublic prior to or in conjunction with such notice being provided to such holder.

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(g)           Share Limitation.  Notwithstanding the above provisions of thisSection 8, the number of shares of Common Stock issuable upon exercise of thisWarrant shall in no event be increased to an amount such that the total numberof shares issuable under the transactions contemplated by the SecuritiesPurchase Agreement exceed 19.99% of the outstanding shares of Common  Stock as of the date of Securities PurchaseAgreement, until the Company’s shareholders approve (without the vote of anyshares acquired in this transaction and related transactions) the issuance ofthe  shares issuable under thetransactions contemplated by the Securities Purchase Agreement.

### Purchase Rights; Reorganization,Reclassification, Consolidation, Merger or Sale.

#### In addition toany adjustments pursuant to Section 8 above, if at any time the Company grants,issues or sells any Options, Convertible Securities or rights to purchasestock, warrants, securities or other property pro rata to the record holders ofany class of Common Stock (the “Purchase Rights”), then the holder ofthis Warrant will be entitled to acquire, upon the terms applicable to suchPurchase Rights, the aggregate Purchase Rights which such holder could haveacquired if such holder had held the number of shares of Common Stockacquirable upon complete exercise of this Warrant immediately before the dateon which a record is taken for the grant, issuance or sale of such PurchaseRights, or, if no such record is taken, the date as of which the record holdersof Common Stock are to be determined for the grant, issue or sale of suchPurchase Rights.

#### Anyrecapitalization, reorganization, reclassification, consolidation, merger, saleof all or substantially all of the Company’s assets to another Person or othertransaction in each case which is effected in such a way that holders of CommonStock are entitled to receive (either directly or upon subsequent liquidation)stock, securities or assets with respect to or in exchange for Common Stock isreferred to herein as an “Organic Change.”  Prior to the consummation of any (i) sale ofall or substantially all of the Company’s assets to an acquiring Person or (ii)other Organic Change following which the Company is not a surviving entity, theCompany will secure from the Person purchasing such assets or the successorresulting from such Organic Change (in each case, the “Acquiring Entity”)a written agreement (in form and substance satisfactory to the holders ofWarrants representing at least two-thirds of the Warrant Shares issuable uponexercise of the Warrants then outstanding) to deliver to each holder ofWarrants in exchange for such Warrants, a security of the Acquiring Entityevidenced by a written instrument substantially similar in form and substanceto this Warrant and satisfactory to the holders of the Warrants (including anadjusted warrant exercise price equal to the value for the Common Stockreflected by the terms of such consolidation, merger or sale, and exercisablefor a corresponding number of shares of Common Stock acquirable and receivableupon exercise of the Warrants without regard to any limitations on exercise, ifthe value so reflected is less than any Applicable Warrant Exercise Priceimmediately prior to such consolidation, merger or sale).  Prior to the consummation of any otherOrganic Change, the Company shall make appropriate provision (in form andsubstance satisfactory to the holders of Warrants representing a majority****of the Warrant Shares issuable upon exercise of theWarrants then outstanding) to insure that each of the holders of the Warrantswill thereafter have the right to acquire and receive in lieu of or in additionto (as the case may be) the Warrant Shares immediately theretofore issuable andreceivable upon the exercise of such holder’s Warrants (without regard toany limitations on exercise), such shares of stock, securities or assets thatwould have been issued or payable in such Organic Change with

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#### respect to orin exchange for the number of Warrant Shares which would have been issuable andreceivable upon the exercise of such holder’s Warrant as of the date of suchOrganic Change (without taking into account any limitations or restrictions onthe exercisability of this Warrant).

### Lost, Stolen, Mutilated or Destroyed Warrant.  If this Warrant is lost, stolen, mutilated ordestroyed, the Company shall promptly, on receipt of an indemnificationundertaking (or, in the case of a mutilated Warrant, the Warrant), issue a newWarrant of like denomination and tenor as this Warrant so lost, stolen, mutilatedor destroyed.

### Notice.  Any notices, consents, waivers or othercommunications required or permitted to be given under the terms of thisWarrant must be in writing and will be deemed to have been delivered:  (i) upon receipt, when deliveredpersonally; (ii) upon receipt, when sent by facsimile (providedconfirmation of receipt is received by the sending party transmission ismechanically or electronically generated and kept on file by the sendingparty); or (iii) one Business Day after deposit with a nationallyrecognized overnight delivery service, in each case properly addressed to theparty to receive the same.  The addressesand facsimile numbers for such communications shall be:

| If to Holder:          |   | Cornell Capital Partners, LP        |
|------------------------|--------|-------------------------------------|
|                   |   | 101 Hudson Street — Suite 3700 |
|                   |   | Jersey City, NJ 07302               |
|                   |   | Attention:                          | Mark A. Angelo |
|                   |   | Telephone:                          | (201) 985-8300 |
|                   |   | Facsimile:                          | (201) 985-8266 |
|                   |   |                                |
| With Copy to:          |   | David Gonzalez, Esq.                |
|                   |   | 101 Hudson Street — Suite 3700 |
|                   |   | Jersey City, NJ 07302               |
|                   |   | Telephone:                          | (201) 985-8300 |
|                   |   | Facsimile:                          | (201) 985-8266 |
|                   |   |                                |
|                   |   |                                |
| If to the Company, to: |   | WorldGate Communications, Inc.      |
| ** **             |   | 3190 Tremont Avenue                 |
| ** **             |   | Trevose, PA 19053                   |
|                   |   | Attention:                          | Joel Boyarski |
|                   |   | Telephone:                          | (215) 354-5312 |
|                   |   | Facsimile:                          | (215) 354-1049 |
|                   |   |                                |
| With a copy to:        |   | Drinker Biddle & Reath LLP      |
|                   |   | 1000 Westlakes Drive, Suite 300     |
|                   |   | Berwyn, PA 19312-2409               |
|                   |   | Attention:                          | Walter Mostek |
|                   |   | Telephone:                          | (610) 993-2233 |
|                   |   | Facsimile:                          | (610) 993-8585 |

 

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If to a holder of thisWarrant, to it at the address and facsimile number set forth on Exhibit Chereto, with copies to such holder’s representatives as set forth on Exhibit C,or at such other address and facsimile as shall be delivered to the Companyupon the issuance or transfer of this Warrant. Each party shall provide five days’ prior written notice to the otherparty of any change in address or facsimile number.  Written confirmation of receipt(A) given by the recipient of such notice, consent, facsimile, waiver orother communication, or (B) provided by a nationally recognized overnightdelivery service shall be rebuttable evidence of personal service, receipt byfacsimile or receipt from a nationally recognized overnight delivery service inaccordance with clause (i), (ii) or (iii) above, respectively.

### Date. The date of this Warrant is set forth on page 1 hereof.  This Warrant, in all events, shall bewholly void and of no effect after the close of business on the ExpirationDate.

### Amendment and Waiver.  Except as otherwise provided herein, theprovisions of the Warrants may be amended and the Company may take any actionherein prohibited, or omit to perform any act herein required to be performedby it, only if the Company has obtained the written consent of the holders ofWarrants representing at least two-thirds of the Warrant Shares issuable uponexercise of the Warrants then outstanding; provided that, except for Section8(c) or (e), no such action may increase the Warrant Exercise Price or decreasethe number of shares or class of stock obtainable upon exercise of any Warrantwithout the written consent of the holder of such Warrant.

### Descriptive Headings; Governing Law.  The descriptive headings of the severalsections and paragraphs of this Warrant are inserted for convenience only anddo not constitute a part of this Warrant. The corporate laws of the State of Delaware shall govern all issuesconcerning the relative rights of the Company and its stockholders.  All other questions concerning theconstruction, validity, enforcement and interpretation of this Agreement shallbe governed by the internal laws of the State of New Jersey, without givingeffect to any choice of law or conflict of law provision or rule (whether ofthe State of New Jersey or any other jurisdictions) that would cause theapplication of the laws of any jurisdictions other than the State of NewJersey.  Each party hereby irrevocablysubmits to the exclusive jurisdiction of the state and federal courts sittingin Hudson County and the United States District Court for the District of NewJersey, for the adjudication of any dispute hereunder or in connection herewithor therewith, or with any transaction contemplated hereby or discussed herein,and hereby irrevocably waives, and agrees not to assert in any suit, action orproceeding, any claim that it is not personally subject to the jurisdiction ofany such court, that such suit, action or proceeding is brought in aninconvenient forum or that the venue of such suit, action or proceeding isimproper.  Each party hereby irrevocablywaives personal service of process and consents to process being served in anysuch suit, action or proceeding by mailing a copy thereof to such party at theaddress for such notices to it under this Agreement and agrees that suchservice shall constitute good and sufficient service of process and noticethereof.  Nothing contained herein shallbe deemed to limit in any way any right to serve process in any mannerpermitted by law.

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### Waiver of Jury Trial.  **AS A MATERIAL INDUCEMENTFOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBYWAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TOTHIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THISTRANSACTION.**

**REMAINDEROF PAGE INTENTIONALLY LEFT BLANK**

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**INWITNESS WHEREOF**, the Company has caused this Warrant to besigned as of the date first set forth above.
|            | **WORLDGATE COMMUNICATIONS, INC.** |
|------------|------------------------------------|
| ** ** | ** **                         | ** ** |
| ** ** | ** **                         | ** ** |
|       | By:                                |   |
|       |                               | Name: |
|       |                               | Title: |

** **

 

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**EXHIBIT A TO WARRANT**

**EXERCISE NOTICE**

**TOBE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT**

**WORLDGATECOMMUNICATIONS, INC.**

The undersigned holder hereby exercises the right topurchase ______________ shares of Common Stock (“Warrant Shares”) of WorldGateCommunications, Inc. (the “Company”), evidenced by the attached Warrant(the “Warrant”).  Capitalizedterms used herein and not otherwise defined shall have the respective meaningsset forth in the Warrant.

Specify Method of exercise by check mark:

1.  ___    Cash Exercise

(a) Payment of WarrantExercise Price. The holder shall pay the Aggregate Exercise Price of$______________ to the Company in accordance with the terms of the Warrant.

(b) Delivery ofWarrant Shares.  The Company shalldeliver to the holder _________ Warrant Shares in accordance with theterms of the Warrant.

2.  ___    Cashless Exercise

(a) Payment of WarrantExercise Price.  In lieu of makingpayment of the Aggregate Exercise Price, the holder elects to receive upon suchexercise the Net Number of shares of Common Stock determined in accordance withthe terms of the Warrant.

(b) Delivery ofWarrant Shares.  The Company shalldeliver to the holder _________ Warrant Shares in accordance with theterms of the Warrant.

| Date:  _______________ __, ______ |   |   |
|-----------------------------------|--------|--------|
|                              |   |   |
| Name of Registered Holder         |   |   |
|                              |   |   |
| By:                               |   |   |   |
| Name:                             |   |   |   |
| Title:                            |   |   |   |

** **

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**EXHIBIT B TO WARRANT**

**FORM OF WARRANT POWER**

**FOR VALUE RECEIVED,**the undersigned does hereby assign and transfer to ________________, FederalIdentification No. __________, a warrant to purchase ____________ sharesof the common stock of WorldGate Communications, Inc. represented by warrantcertificate no. _____, standing in the name of the undersigned on thebooks of said corporation.  Theundersigned does hereby irrevocably constitute and appoint ______________,attorney to transfer the warrants of said corporation, with full power ofsubstitution in the premises.

| Dated:     |   |   |   |   |
|------------|--------|--------|--------|--------|
|       |   |   |
|       |   |   |
|       | By:    |   |
|       | Name:  |   |
|       | Title: |   |
| ** ** |   |   |

 

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**EXHIBIT B**

**RULE 144 ACKNOWLEDGEMENT AND AGREEMENT**

For so long as the undersigned (i) beneficiallyowns more than 0.8% of the outstanding shares WorldGate Communications, Inc.(the “Company”) and (ii) is an “affiliate” of the Company (asdefined in Rule 144 of the General Rules and Regulations under theSecurities Act of 1933, as amended (the “Act”)), the undersigned hereby agreesthat for a period commencing on August ___, 2006 and expiring on the datethirty (30) days after the date that 80% of the amounts owed to CornellCapital Partners, LP (the “Investor”), under the SecuredConvertible Debentures issued to the Investor pursuant to the SecuritiesPurchase Agreement between Company and the Investor dated August ___, 2006have been paid (the “Lock-up Period”), he, she or it will not, directlyor indirectly, without the prior written consent of the Investor, issue, offer,agree or offer to sell, sell, grant an option for the purchase or sale of,transfer, pledge, assign, hypothecate, distribute or otherwise encumber ordispose of any securities of the Company, including common stock or options,rights, warrants or other securities underlying, convertible into, exchangeableor exercisable for or evidencing any right to purchase or subscribe for anycommon stock (whether or not beneficially owned by the undersigned), or anybeneficial interest therein (collectively, the “Securities”) on theAmerican Stock Exchange, New York Stock Exchange, the Nasdaq National Market,the Nasdaq Capital Market or the Nasdaq OTC Bulletin Board except in accordancewith the volume limitations set forth in Rule 144(e) of the General Rulesand Regulations under the Act.

In order to enable the aforesaid covenants to beenforced, the undersigned hereby consents to the placing of legends and/or stop-transferorders with the transfer agent of the Company’s securities with respect to anyof the Securities registered in the name of the undersigned or beneficiallyowned by the undersigned, and the undersigned hereby confirms the undersigned’sinvestment in the Company.

Dated: _______________,2006

 

|   | Signature                    |
|--------|------------------------------|
|   |                         |
|   |                         |
|   |                         |
|   | Name:                        |   |
|   | Address:                     |   |
|   | City, State, Zip Code:       |   |
|   |                         |   |
|   |                         |
|   |                         |
|   | Print Social Security Number |
|   | or Taxpayer I.D. Number      |
|        |                              |  |  |  |  |

 

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